From April 2026, Going Limited Could Cost You More. Here's What Creative Professionals Need to Know

For years, the advice was simple: “Going Limited save you tax.”

Whilst being Limited has been less attractive than it used to be, from April 2026, that logic changes even more for many small businesses. In fact, if you're in the creative industries and take most of your income out of your company each year, being a sole trader could now be the more tax-efficient option.

Let’s break down what’s changing, why it matters, and what creatives need to think about before the new rules hit.

Why Ltd used to be the go-to option

If you’re a freelancer or creative business owner, chances are someone once told you to set up a limited company. There were two main tax benefits:

• More take-home pay
  You could pay yourself a small salary and top it up with dividends. Dividends were taxed more lightly and didn’t attract National Insurance in the same way.

• The ability to leave profits in the business
  If you didn’t need to take all your income out immediately, profits could be taxed at lower corporation tax rates. This gave you more flexibility and reduced your overall bill.

For many creatives, especially those growing or reinvesting, this structure worked well.

What’s changing from 6 April 2026

From 6 April 2026, dividend tax rates are going up:

A 2% increase might not seem dramatic at first. But if you're using dividends to pay yourself most of your income, it makes a real difference to your take-home pay.

If you are withdrawing most of your profits, a limited company will most likely no longer be the cheaper tax route.

When being a sole trader is now more tax-efficient

You may want to reconsider your Ltd status if:

• You take out most of your profits to live on

• You don’t retain money in the business

• Your profits are modest to mid-range

• You want simpler admin and fewer compliance headaches

Real client example:
A creative agency owner who took most profits out of the business found that, with the new 2026 rates, staying Ltd would increase their tax bill by around 50% compared to switching to sole trader. The difference came purely from the higher dividend tax, with no buffer from retained profits.

But what if clients require you to be Ltd?

This is key in the creative industries.
Some larger clients or agencieswon’t contract with sole traders, either for legal, payment, or internal compliance reasons. In these cases,having a limited company can still be the right move.

✔️It gives credibility
✔️It’s often required to work with agencies or corporates
✔️It can open doors to bigger projects

So if you’re freelancing or contracting in creative fields like video, marketing, UX, or design, and your clients prefer working with limited companies, that’s still a strong reason to stay incorporated.

The hidden cost: admin overhead

A limited company does brings more admin, such as:

• Year-end accounts

• Corporation tax returns

• Payroll and RTI

• Dividend paperwork

• Companies House filings

• Higher accountancy fees

With the tax benefits gone, these extras make being Limited even less attractive!

What about liability protection?

A limited company creates legal separation between you and your business. That’s important if something goes wrong.

But this is arisk managementreason, not a tax one.

As a sole trader, you can still protect yourself with:

• Professional indemnity or public liability insurance

• Clear client contracts

• Defined scopes of work

• Good processes and practices

In many cases, insurance and good planning give you all the protection you need without the extra costs of a company.

How to decide: Ltd or sole trader?

Here’s a useful guide

It depends on your real-world numbers, not what used to be true. Don’t rely on old assumptions.

Don’t forget Making Tax Digital

If you switch to sole trader, you will need to prepare forMaking Tax Digital (MTD) for Income Tax, which is coming in stages:

• From April 2026: turnover over £50,000

• From April 2027: turnover over £30,000

• From April 2028: turnover over £20,000

This means using digital bookkeeping and sending updates to HMRC quarterly, plus an annual tax return.

Final thoughts

From April 2026, a limited company is no longer the automatic tax-saving structure it once was for creatives. If you’re taking most profits out of your business, the new dividend tax rates might leave you worse off.

Before you make any decisions, please do run the numbers with your accountant. Every business is different, and small factors like other income, student loans, or retained profits can shift the outcome.

Want help reviewing your structure?

We help creatives like you make smarter tax decisions and build businesses that fit your lifestyle, clients, and goals. Book a free discovery call to explore whether Ltd or sole trader will serve you better in 2026 and beyond.

If you want to know if it's better for you to be limited or sole trader, feel free to get in touch.