Choosing the business vehicle

Produced by a Tolley Owner-Managed Businesses expert

Owner-Managed Businesses

Guidance

When a person decides to start in business, consideration should be given as to the most suitable type of entity for the business. This decision will depend on legal, commercial and administrative factors, as well as taxation.

When advising on which type of business vehicle to choose, this guidance note summarises the main tax considerations in deciding which business structure is appropriate for the business owner. A comparison document which summarises both practical and tax differences can be found in the Starting the business ― overview guidance note, together with checklists of the various issues to consider.

Differing rates of tax

Rates of tax and NIC are different depending on the type of business vehicle used. In 2025/26 and 2024/25, the following paragraphs summarise the rates which apply.

Sole trader or partner in a partnership

A sole trader or partner in a partnership will pay income tax at rates of 0%, 20%, 40% and 45% (for both 2025/26 and 2024/25 ) on the profits generated by the business they run, depending on the level of profits they generate

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