How to set up a limited company as a tradesperson in the UK

Setting up a limited company is one of the biggest decisions you will make as a tradesperson. It changes how you pay tax, how you invoice clients, and how much personal liability you carry. For many tradespeople earning above £50,000 a year, it makes financial sense. But the process itself is simpler than most people expect.

This guide walks through every step, from choosing a company name to filing your first accounts.

Why tradespeople set up limited companies

The main reason is tax efficiency. As a sole trader, you pay income tax and National Insurance on all your profits. As a limited company director, you can pay yourself a small salary (usually around the NI threshold of £12,570) and take the rest as dividends, which are taxed at lower rates.

For a tradesperson earning £60,000 profit, the difference can be £3,000 to £5,000 per year in tax savings. That is a meaningful amount of money.

The other reason is limited liability. If something goes wrong on a job and a client sues, your personal assets (house, savings, van) are protected. The company is a separate legal entity. This matters particularly for trades like gas fitting, electrical work, and roofing where the stakes are high.

Step 1: Choose your company name

Your company name must be unique. Check the Companies House name availability tool before committing to anything.

Keep it professional and relevant. Something like "J. Smith Plumbing Ltd" works perfectly. Avoid anything too clever or generic. The name will appear on every invoice, quote, and contract you send.

Your company name does not need to match your trading name. You can trade as "Smith Plumbing Services" while the registered company is "J. Smith Plumbing Ltd".

Step 2: Register with Companies House

You can register online at gov.uk. The fee is £12 for online registration, and it usually takes 24 hours to process.

You will need:

• A registered office address (can be your home address)
• At least one director (that is you)
• At least one shareholder (also you, in most cases)
• A Standard Industrial Classification (SIC) code for your trade
• Details of your share structure (100 ordinary shares at £1 each is standard)

Common SIC codes for tradespeople:

• 43210 - Electrical installation
• 43220 - Plumbing, heat and air-conditioning installation
• 43310 - Plastering
• 43341 - Painting
• 43390 - Other building completion and finishing
• 43110 - Demolition and site preparation

Step 3: Register for Corporation Tax

Within three months of starting to trade, you must register for Corporation Tax with HMRC. You will receive a UTR (Unique Taxpayer Reference) for the company. This is separate from your personal UTR if you were previously a sole trader.

Corporation Tax is currently 25% on profits over £50,000 (19% on profits under £50,000 via the small profits rate). Your company's financial year starts from the date of incorporation.

Step 4: Open a business bank account

As a limited company, you are legally required to keep company finances separate from personal ones. Open a business bank account in the company name.

High street banks like Barclays, Lloyds, and NatWest all offer business accounts, but the application process can take weeks. Digital banks like Starling, Tide, and Mettle are often faster and have lower fees.

All client payments should go into this account. Use a proper invoicing system to track what is owed and what has been paid.

Step 5: Set up your payroll

Even if you are the only employee, you need to run payroll through HMRC's Real Time Information (RTI) system. Most tradespeople pay themselves a salary of £12,570 per year (the personal allowance) and take additional income as dividends.

You can run payroll yourself using HMRC's Basic PAYE Tools, or use accounting software like Xero, FreeAgent, or QuickBooks. Many tradespeople hire an accountant to handle this. Expect to pay £80 to £150 per month for a decent accountant.

Step 6: Register for VAT (if applicable)

If your turnover exceeds the VAT threshold (currently £90,000), you must register for VAT. You can also register voluntarily below this threshold, which can be worthwhile if most of your clients are VAT-registered businesses.

Read our guide on when to register for VAT for a detailed breakdown of the pros and cons.

Step 7: Get the right insurance

Your existing sole trader insurance may not cover you as a limited company. You will need:

• Public liability insurance (essential for all trades)
• Professional indemnity insurance (if you provide design or advisory services)
• Employers' liability insurance (legally required once you have any employees, including yourself as a director)
• Tool and equipment insurance

Step 8: Update your invoices and quotes

Limited company invoices have specific legal requirements. Every invoice must show:

• Your company name as registered with Companies House
• Your company registration number
• Your registered office address
• Your VAT number (if registered)

Use our free invoice generator to create compliant invoices that include all required details.

Annual obligations

Running a limited company comes with ongoing admin:

• Confirmation statement - filed annually with Companies House (£13)
• Annual accounts - filed with Companies House within 9 months of your financial year end
• Corporation Tax return - filed with HMRC within 12 months of your financial year end
• VAT returns - quarterly if VAT registered
• Payroll submissions - monthly or each time you pay yourself
• Self Assessment - you still need to file a personal tax return as a director

Common mistakes to avoid

Mixing personal and business money. Keep them completely separate. HMRC will investigate if they see personal expenses going through the company account.

Forgetting to file on time. Late filing penalties start at £150 and increase the longer you leave it. Set calendar reminders for every deadline.

Not keeping receipts. You can claim legitimate business expenses (tools, materials, van costs, phone), but only if you have the receipts. Use an app to photograph them on the day.

Paying too much in dividends. You can only pay dividends from retained profits. If the company has not made enough profit, you cannot take the money out as dividends.

Is it worth it?

For most tradespeople earning under £30,000, staying as a sole trader is simpler and the tax savings are minimal. Between £30,000 and £50,000, it depends on your circumstances. Above £50,000, a limited company almost always saves you money.

Read our detailed comparison: sole trader vs limited company.

If you are not sure, speak to an accountant who specialises in tradespeople. A good accountant will pay for themselves many times over in tax savings and peace of mind.