Running a limited company costs more than being a sole trader — but for most contractors and consultants earning above £35,000–£40,000/year, the tax savings make it worthwhile. This guide gives you the full cost picture, so you can model the real breakeven before deciding.
The Full Annual Cost of a UK Limited Company (2026/27)
| Cost item | Low estimate | High estimate | Notes |
|---|---|---|---|
| Companies House confirmation statement | £34 | £34 | Mandatory annual filing |
| Accountant — full service | £1,500 | £3,000 | Accounts, CT600, payroll, SA |
| Payroll software (if self-managed) | £0 | £150 | e.g. FreeAgent, Xero, Sage |
| Business bank account | £60 | £300 | Many charge monthly fees |
| Professional Indemnity Insurance | £300 | £1,200 | Depends on profession and turnover |
| Public Liability Insurance | £150 | £400 | Required by many clients |
| IR35 Insurance | £0 | £500 | Optional; important for contractors |
| Virtual office / registered address | £0 | £200 | Optional; needed if using home |
| Total annual cost | £2,044 | £5,784 | Typical: £2,500–£4,000 |
Mandatory Costs You Cannot Avoid
Companies House — £34/year
Every limited company must file a confirmation statement once a year. This costs £34 online (£62 by post). Missing the filing is a criminal offence and can lead to compulsory strike-off.
You also need to file annual accounts and a Corporation Tax return — these are free to file but require time or professional help.
Corporation Tax — Based on Profit
Corporation Tax is not a running “cost” as such, but it is a liability you must budget for:
| Profit | CT rate 2026/27 |
|---|---|
| Up to £50,000 | 19% (small profits rate) |
| £50,001–£250,000 | 19–25% (marginal relief) |
| Over £250,000 | 25% (main rate) |
Budget approximately 19–25% of company profit for Corporation Tax. Pay it within 9 months and 1 day of your company year end.
Accountant Costs — The Biggest Variable
For a one-person limited company, a good accountant typically charges:
| Service level | Annual cost | What’s included |
|---|---|---|
| DIY with software only | £150–£400 | Software subscription; you file everything |
| Basic accountant | £800–£1,500 | Accounts + CT600 only |
| Full service accountant | £1,500–£3,000 | Accounts, CT, payroll, dividends, self-assessment |
| Premium / complex | £3,000–£6,000 | IR35 reviews, group structures, VAT |
What “full service” means for a typical contractor:
- Year-end statutory accounts (filed at Companies House and HMRC)
- Corporation Tax return (CT600)
- Monthly or quarterly payroll (including RTI submissions to HMRC)
- Dividend recommendations and administration
- Self-assessment for the director (personal tax return)
- VAT returns if VAT registered
For most one-person companies, £1,800–£2,400/year is a reasonable budget for a full service from a contractor-specialist accountant.
See the Limited Company Accountant Costs guide for a detailed comparison.
Business Bank Account
You are not legally required to have a separate business account, but it is strongly advised — mixing personal and business finances creates accounting and legal complications.
Typical costs:
- Traditional banks (Barclays, HSBC, Lloyds): £6–£15/month = £72–£180/year
- Digital-first accounts (Starling Business, Monzo Business, Tide): £0–£10/month = £0–£120/year
Many digital accounts are free for the first year. Starling Business and Tide offer free accounts with no monthly fee.
Insurance Costs
Professional Indemnity Insurance (PI)
Required by most clients (and mandatory in regulated professions). Covers legal costs if a client claims your advice or work caused them a financial loss.
| Annual turnover | Typical PI premium (£1m coverage) |
|---|---|
| Under £50,000 | £300–£500 |
| £50,000–£150,000 | £400–£800 |
| £150,000–£500,000 | £700–£1,500 |
Public Liability Insurance
Covers injury or property damage to third parties. Required by most client contracts where you work on client premises.
- Typical cost: £150–£300/year for £1–2m coverage
Employer’s Liability Insurance
If you are the sole director and have no employees, you are generally exempt from the legal requirement for EL insurance. However, some contracts (especially public sector) require it regardless. Typically £100–£250/year.
IR35 Insurance
Covers the cost of an HMRC investigation under IR35 and any resulting tax liability. See the IR35 Insurance guide.
Payroll Software / Admin
If your accountant handles payroll, this is included in their fee. If you run it yourself:
- FreeAgent: ~£19/month (often free via some banks)
- QuickBooks: ~£15/month
- Sage Payroll: ~£9/month
Many contractor-specialist accountants include payroll in their package fee.
VAT Registration — Optional or Mandatory
If your VAT-taxable turnover exceeds £90,000 in 12 months, VAT registration is mandatory. Below that it is optional.
Flat Rate Scheme (FRS): Many small companies use FRS, which simplifies VAT accounting. You pay a fixed % of gross turnover to HMRC (e.g. 14.5% for IT consultants) and keep the difference from the 20% you charge clients.
VAT return filing is usually included in an accountant’s package. If doing it yourself, free via HMRC’s Making Tax Digital portal (requires compatible software).
The Real Net Position
Example: IT contractor earning £80,000 in fees/year
| Item | Annual cost |
|---|---|
| Accountant (full service) | £2,200 |
| Companies House | £34 |
| Business bank account (Tide free) | £0 |
| PI Insurance | £500 |
| PL Insurance | £200 |
| Total running costs | £2,934 |
Compare to operating as a sole trader (self-assessment only: ~£300/year in software/accountant costs) — the extra cost is approximately £2,600/year.
On £80,000 of fees, a limited company structure typically saves £7,000–£10,000+/year in tax vs sole trader. The maths strongly favours limited company status at this income level.
See the Ltd vs Umbrella Breakeven Analysis for the full model.