For a trade business inside CIS the cash-flow difference usually decides this before the tax does — and gross payment status changes the answer more than the structure does.
The honest comparison
Most comparisons of sole trader against limited company are a tax calculation. For a business inside CIS that is the second question, because the first one is when you get your own money back.
As a sole trader, CIS deductions are advance payments of income tax and Class 4 National Insurance. They go on the self-employment pages, are set against your Self Assessment liability, and any excess is repaid — after the tax year ends and the return is filed. A deduction suffered in April can wait the best part of two years for the return that recovers it.
As a company, you cannot claim them on the corporation tax return at all. You offset them monthly through the Employer Payment Summary against PAYE, National Insurance, student loan repayments and the CIS you have deducted from your own subcontractors. That is faster — if you have enough of those liabilities to absorb the deductions. A labour-only company with one or two on the payroll does not, so the excess accumulates until after 5 April, when it may be refunded or set against corporation tax.
Neither structure fixes the problem. Gross payment status does, because there is no deduction to recover. If you would pass the turnover test — £30,000 net of VAT and materials for a sole trader — that conversation is worth having before the structure one.
Trading personally, profits are taxed at 20%, 40% and 45% on the bands above a £12,570 personal allowance, with Class 4 National Insurance at 6% and then 2%. Trading through a company, profits bear corporation tax at 19% up to £50,000 and 25% above £250,000 with marginal relief between — and then you pay again to get the money out.
That second stage got more expensive on 6 April 2026. The dividend ordinary rate went from 8.75% to 10.75% and the upper rate from 33.75% to 35.75%. The additional rate stayed at 39.35% and the allowance stayed at £500. Corporation tax did not move, so the change falls entirely on extraction.
Two further things that catch trade companies specifically. Associated companies divide the marginal relief limits by the number of associated companies plus one — three associates means a lower limit of £12,500 rather than £50,000, which is easy to walk into if you have a second company for a different part of the work. And the Employment Allowance is not available to a company whose single director is its only employee liable for secondary Class 1 National Insurance, which is exactly the shape of a newly incorporated one-person trade.
There is no general answer, and for a trade business the tax comparison is usually not the deciding factor — the CIS cash flow is. A sole trader recovers CIS deductions through Self Assessment after the tax year ends. A company offsets them monthly through the Employer Payment Summary, but only against PAYE, National Insurance, student loan repayments and the CIS it deducts from its own subcontractors, and a labour-only company with a small payroll cannot absorb what it suffers. Either way, gross payment status changes the answer more than the structure does.
Yes, against companies at the margin. The dividend ordinary rate rose from 8.75% to 10.75% and the upper rate from 33.75% to 35.75% on 6 April 2026. The additional rate is unchanged at 39.35% and the allowance is still £500. Corporation tax itself did not change — 19% up to £50,000, 25% above £250,000, marginal relief between. So the cost of getting money out of a company went up while the cost of earning it inside one stayed the same.
No. The cash basis is for sole traders and partnerships without corporate partners. A limited company, an LLP, or a partnership with one or more corporate partners cannot use it. That matters more than it sounds for a trade business, because under the cash basis a van and your tools are simply deducted as allowable expenses — cars being the exception on which capital allowances are still claimed. gov.uk describes the cash basis as the standard way for a sole trader or partnership without corporate partners to record income and expenses, so it is the default rather than an election you have to justify.
Not by itself, and it can move the problem rather than solve it. If you engage labour, the status question is about the terms of each engagement regardless of what your own business is. And if you are the worker rather than the engager, incorporating puts you inside the off-payroll working rules where the client is medium or large — in which case the client determines your status, issues a Status Determination Statement and the fee payer deducts tax and National Insurance before you see the money.
Three months of returns and statements, a straight account of what is wrong and what it is costing, and a number on the gross payment status question.
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