Can You Be Both Self-Employed and Have a Limited Company?
Yes, you can. But only in certain situations.
It’s common for people in the UK to earn from different sources. Maybe you freelance part-time while running a small company, or you’re planning to start one alongside your existing business. If that sounds familiar, it’s worth knowing how the rules actually work and what HMRC expects from you.
Table of Contents
What Happens When You Set Up a Limited Company
Once you create a limited company, things change from a tax point of view. Your company becomes a separate legal body, completely apart from you as a person.
That means you’re not classed as self-employed any more, you’re an employee and director of your own company. It may feel like you’re still working for yourself, but legally and financially, the company stands on its own.
This difference matters for how you pay tax, how you take money out of the business, and what happens if something goes wrong.
Can You Run Both at the Same Time?
You can run both, but not for the same type of work.
Let’s say you’re a self-employed web designer. You could also set up a limited company to run a small e-commerce shop. That’s fine, because they’re completely different businesses.
But you can’t invoice the same clients for the same service under both your sole trader and limited company names. That would confuse HMRC and could cause problems at tax time.
If you’re moving from self-employed to limited company, there’s usually a short period when both exist together. During that time, your accountant will manage both sides and make sure your tax returns are correct for each business.
How HMRC Views Your Job Status
When you run a limited company, HMRC sees you as an employee of that company, not as a sole trader.
You’ll usually pay yourself in two parts:
- A salary through PAYE.
- Dividends from company profits.
Your salary is taxed like normal employment income, and your dividends are taxed at lower rates. It’s a common setup because it can reduce your overall tax bill.
Even though you work for your own business, you’re technically both a director and a shareholder, not a self-employed person.
The Difference in Tax
The biggest gap between the two setups is how tax is worked out.
Limited Company (2025/26 tax year):
- Pays Corporation Tax at 19% on profits (for profits up to £50,000).
- You pay Income Tax on your salary through PAYE.
- Dividends are taxed separately after a £500 allowance.
- Dividend tax rates: 8.75%, 33.75%, or 39.35%, depending on income.
- No National Insurance on dividends.
Sole Trader:
- Pays Income Tax on all profits between 20% and 45%.
- Pays Class 2 and Class 4 National Insurance.
- Has a personal allowance of £12,570.
Accountants often suggest switching to a limited company once your profits reach around £20,000–£25,000. That’s when the tax savings tend to make it worthwhile.
Looking for Limited Comapany Accountant?
Why Some People Choose a Limited Company
The biggest reason is protection.
When you’re self-employed, you and your business are the same thing. If something goes wrong, like a customer dispute or unpaid bills, your personal savings or home could be at risk.
A limited company gives you limited liability, meaning the company is responsible for its debts, not you personally. That layer of protection can make a huge difference once your business starts to grow.
Running More Than One Business
Yes, you can have different businesses with different structures. For example, you might keep one business as a sole trader and open another as a limited company.
Just make sure to:
- Keep separate accounts and bank records for each one.
- File the correct tax returns for both.
- Register each company separately with HMRC.
If you also have a full-time job, check your employment contract first, some employers don’t allow side businesses that compete with their own.
Moving from Self-Employed to Limited Company
If you decide to move over, there’ll be a short period where you’re still finishing your self-employed work while your new company starts trading. That’s normal and happens to almost everyone who makes the switch.
During this time, your accountant will:
- Register your company with Companies House.
- Help you set up PAYE for your salary.
- Transfer your existing clients to your company, if needed.
- Handle both your self-employed and company tax returns correctly.
It’s important to tell your clients about the change so there’s no confusion over invoices and payments.
What You Must Do as a Company Director
Running a limited company means a bit more paperwork. You’ll need to:
- File annual accounts and a confirmation statement with Companies House.
- Keep proper financial records for at least six years.
- Register for VAT if your turnover passes £90,000.
- Run payroll correctly if you pay yourself or any staff.
It’s not complicated once you get used to it, but missing a deadline can lead to fines, so keeping on top of your accounts is vital.
How Pensions Work in Each Setup
Both setups allow you to save for retirement, but they do it differently.
- If you’re self-employed, you’ll make personal pension contributions from your profits.
- If you’re a company director, your company can pay into your pension directly, and those payments are usually tax-deductible.
This can be a smart way to save money while cutting your company’s tax bill.
Which Option Is Better for You?
It really depends on your income, goals, and the type of work you do.
- If your profits are below £20,000, staying self-employed is simpler and more flexible.
- If you’re earning more, or if your business involves higher risk, a limited company can offer better tax rates and more protection.
- Some clients also prefer to work with limited companies, which can help your reputation.
Speak to an Accountant Before You Decide
The best way to choose is to talk to a qualified affordable accountant. They can help you see how much tax you’d pay under each option, explain your responsibilities, and make sure you stay on the right side of HMRC.
A short chat could save you a lot of time and money in the long run.
Looking for Personal Tax Accountant
Final Thoughts
Yes, you can be self-employed and also own a limited company, as long as they’re for different kinds of work.
The main thing is to know which taxes apply to you, keep your records clear, and pick the setup that makes the most sense for your income and future plans. Whether you stick with sole trading, go limited, or manage both, good advice and careful planning will always pay off.
Emergency Tax on Pension Lump Sums: How to Reclaim It
Took a pension lump sum and lost much of it to tax? Find out why HMRC applies emergency tax, which form to use, and how long refunds take.
Do You Pay Tax on Renting Out Your Driveway or Garage?
Renting out your driveway, garage or storage space is usually tax free up to £1,000 of gross income a year. Find out when you must tell HMRC.
Wrong Tax Code on Your Payslip? Check, Fix and Claim It Back
Think you have the wrong tax code? Learn what 1257L, BR, 0T, D0, W1, M1 and X mean, how to check your code with HMRC, and how to claim back overpaid tax.
Rent a Room Scheme and Airbnb Tax: What You Owe
The Rent a Room Scheme lets you earn £7,500 a year tax free from a lodger in your main home. Find out when it covers Airbnb income and when it does not.
Changing Accountant: How to Switch Without Missing Deadlines
Changing accountant in the UK? Learn the switching process, the documents you need, and which HMRC and Companies House deadlines are at risk during handover.
Client of the Month: Verity Vox Ltd
This month, we’re celebrating them as our Client of the Month because they’re doing something that matters: helping homes and businesses take control of their own energy.