If you are a consultant working through your own business, the choice between a limited company and a limited liability partnership (LLP) is one of the first big structural decisions you will make. Get it right and you save tax, reduce admin, and protect your personal assets. Get it wrong and you can end up overpaying HMRC or carrying unnecessary compliance risk.

This guide compares the two structures directly. We will look at tax rates, personal liability, National Insurance, profit extraction, and what happens when you want to exit. The limited company vs LLP consultant decision is not one-size-fits-all. But by the end of this article you will know which questions to ask your accountant.

As ICAEW qualified accountants, we advise consultants across the UK on this choice every week. The answer depends on your specific circumstances. But there are clear patterns that point one way or the other.

What Is a Limited Company?

A limited company is a separate legal entity from its directors and shareholders. It files its own tax return (CT600), pays corporation tax on its profits, and distributes the remaining profit as dividends to shareholders. The directors are employees of the company for tax purposes.

Key features for consultants:

  • Corporation tax at 19% on profits up to £50,000, then marginal relief up to 25% on profits above £250,000.
  • Directors pay themselves a salary (subject to PAYE and employer NI) and dividends (taxed at 8.75%, 33.75%, or 39.35% depending on your personal income tax band).
  • Limited liability: your personal assets are separate from company debts (with some exceptions for personal guarantees and director misconduct).
  • Annual accounts filed at Companies House and a CT600 filed with HMRC.
  • Confirmation statement every 12 months.

Most solo consultants and small partnerships of two to three people operate through a limited company. It is the default structure for anyone earning above £40,000 from their consulting work, because the overall tax burden is lower than being a sole trader.

What Is a Limited Liability Partnership (LLP)?

An LLP is a hybrid structure. It gives you the limited liability of a company but the tax treatment of a partnership. The LLP itself does not pay tax. Instead, each member pays income tax and National Insurance on their share of the profits through self assessment.

Key features for consultants:

  • No corporation tax. Each member pays income tax at their marginal rate (20%, 40%, or 45%) plus Class 4 NIC (9% on profits between £12,570 and £50,270, then 2% above that).
  • Members are not employees. They are self-employed for tax purposes, so no PAYE or employer NI on drawings.
  • Limited liability: members are not personally liable for the LLP's debts beyond their capital contribution (again, personal guarantees excepted).
  • Annual accounts filed at Companies House. Each member files a self assessment return (SA100 plus partnership pages SA800).
  • No confirmation statement, but you must file an annual return (similar purpose).

LLPs are most common in professional services: law firms, accountancy practices, surveyors, architects, and management consultancies where there are multiple partners and a need for a more flexible profit-sharing structure. They are less common for solo consultants, but not unheard of.

Limited Company vs LLP Consultant: The Tax Comparison

This is the section most consultants care about. How much tax will you actually pay under each structure?

Let us run a worked example. Assume a consultant generates £80,000 profit (after all business expenses except salary and pension). We will compare the total tax bill under each structure for the 2025/26 tax year.

Solo Consultant Through a Limited Company

Typical efficient setup: pay yourself a salary of £12,570 (matches the personal allowance and primary NI threshold). Take the remaining profit as dividends.

Profit: £80,000
Salary: £12,570 (no income tax, no employee NI, but employer NI applies at 13.8% above the secondary threshold of £9,100. Employer NI on £3,470 = £479).
Employer NI: £479
Corporation tax: 19% on (£80,000 minus £12,570 minus £479) = 19% on £66,951 = £12,721
Profit after CT: £54,230
Dividends: £54,230
Dividend tax: first £500 tax-free (dividend allowance). Then £54,230 minus £500 = £53,730 taxed at dividend rates. Assuming no other income, the basic rate band is £50,270 minus £12,570 salary = £37,700 available. So £37,700 at 8.75% = £3,299. The remaining £16,030 at 33.75% = £5,410.
Total dividend tax: £8,709
Total tax (CT + employer NI + dividend tax): £12,721 + £479 + £8,709 = £21,909
Net retained: £80,000 minus £21,909 = £58,091

Solo Consultant Through an LLP

As an LLP member, you are self-employed. You pay income tax and Class 4 NIC on the full £80,000 profit.

Income tax: £80,000 minus £12,570 personal allowance = £67,430 taxable. First £37,700 at 20% = £7,540. Next £29,730 at 40% = £11,892. Total income tax = £19,432.
Class 4 NIC: 9% on (£50,270 minus £12,570) = 9% on £37,700 = £3,393. Then 2% on (£80,000 minus £50,270) = 2% on £29,730 = £595. Total Class 4 = £3,988.
Total tax (income tax + Class 4 NIC): £19,432 + £3,988 = £23,420
Net retained: £80,000 minus £23,420 = £56,580

In this scenario, the limited company saves you about £1,511 per year. The gap widens as profits increase, because corporation tax rates are lower than higher-rate income tax. At £150,000 profit, the limited company saves around £6,000 to £8,000 depending on dividend mix.

But the comparison changes if you need to extract all the profit as salary (for example, if you want to maximise pension contributions or if you have no retained earnings requirement). And it changes if you are in a partnership with other members who have different tax positions.

Liability and Risk

Both structures offer limited liability. That is a major step up from being a sole trader, where your personal assets are at risk from any business debt or legal claim.

With a limited company, the company is a separate legal person. If the company is sued, the claimant can only go after the company's assets, not your house or savings. The same applies to an LLP: the partnership is a separate legal entity, and members are not personally liable for partnership debts beyond their agreed capital.

There are two important caveats. First, personal guarantees. If you sign a personal guarantee on a lease or a loan, you are personally on the hook regardless of structure. Many landlords and banks require personal guarantees from directors or LLP members of small businesses.

Second, wrongful trading and director misconduct. Directors of limited companies can be held personally liable if they continue trading while insolvent. LLP members have similar duties under the Insolvency Act.

For most consultants, the practical liability protection is similar between the two structures. The real difference is in the tax and admin.

Administration and Compliance Burden

A limited company requires more paperwork than an LLP. You need to:

  • Run payroll (RTI submissions every month or quarter).
  • File a CT600 corporation tax return annually.
  • File annual accounts at Companies House (including a balance sheet and profit and loss).
  • Maintain statutory registers (directors, shareholders, PSC register).
  • File a confirmation statement every 12 months.
  • Deal with PAYE, employer NI, and pension auto-enrolment if you have employees (including yourself as a director).

An LLP also files accounts at Companies House, but there is no corporation tax return. Each member files their own self assessment. There is no payroll to run unless the LLP employs non-member staff. For a solo consultant, the LLP is simpler on the compliance front.

That said, the admin burden of a limited company is manageable with good bookkeeping software. Xero or FreeAgent handle payroll, VAT, and accounts filing. Most accountants charge a similar fee for either structure once you are set up.

Profit Extraction and Flexibility

With a limited company, you control when and how you extract profit. You can leave profit in the company (retained earnings) to build up a war chest, invest in equipment, or fund a sabbatical. You can pay yourself dividends quarterly or annually. You can also take a lower salary and top up with dividends to stay within the basic rate band.

With an LLP, you are taxed on your share of the profits each year regardless of whether you draw the cash out. If the LLP makes £80,000 profit, you pay income tax and Class 4 NIC on the full amount even if you leave the cash in the business bank account. That can create cash flow pressure if the business needs to retain funds for investment.

This is a significant difference. Consultants who want to reinvest heavily in their business often prefer a limited company because they can defer personal tax on retained profits. Consultants who want to take every pound out each year may prefer the simplicity of an LLP.

Pension Contributions

Both structures allow pension contributions. With a limited company, the company can make employer pension contributions directly to your personal pension. These are deductible against corporation tax, and there is no NI on employer pension contributions. This is very tax-efficient.

With an LLP, pension contributions are made from your personal profits after tax. You get tax relief at your marginal rate, but you pay Class 4 NIC on the profit before the contribution. The limited company route is usually more efficient for pension planning.

IR35 and Off-Payroll Working

If you are a consultant working through your own company for a single client, IR35 is a real concern. The off-payroll working rules (Chapter 10 ITEPA 2003) apply when a medium or large client engages you through your limited company but treats you as an employee for tax purposes.

If your contract is caught by IR35, your limited company must deduct PAYE and employee NI on the deemed employment payment. This largely removes the tax advantage of the limited company.

LLPs are not caught by IR35 in the same way. The off-payroll rules apply specifically to intermediaries (typically limited companies). An LLP is not an intermediary for IR35 purposes, so the rules do not apply. This can be a decisive advantage for consultants who work through a single client for extended periods.

However, HMRC can still challenge an LLP arrangement under the general anti-abuse rule or the settlements legislation if they believe the structure is being used to avoid tax. And if you are genuinely self-employed, you should already be outside IR35 anyway.

For many consultants, the limited company vs LLP consultant decision comes down to whether IR35 is a live issue. If you have multiple clients and genuine control over your work, IR35 is less of a concern and the limited company tax advantages apply. If you work through an agency for one client, an LLP may be safer.

Exit and Capital Gains

When you sell your consulting business, the structure matters enormously for capital gains tax.

With a limited company, you sell your shares. If you have held them for at least two years, you can claim Business Asset Disposal Relief (BADR). This gives you a 14% CGT rate on the first £1 million of gains in 2025/26, rising to 18% from April 2026. That is significantly lower than the standard 24% CGT rate for business assets.

With an LLP, you sell your membership interest. This can also qualify for BADR, but the rules are more complex. You must be a member for at least two years, and the business must be a trading business. Many consulting businesses qualify, but the disposal of an LLP interest is harder to structure tax-efficiently than a share sale.

For consultants who plan to sell their business within the next five to ten years, the limited company structure is usually the better choice for exit planning.

When to Choose a Limited Company

Choose a limited company if:

  • You are a solo consultant or in a small team (two to three people).
  • Your profit is above £40,000 per year and you want the lowest overall tax burden.
  • You want to retain profits in the business for future investment.
  • You want to maximise pension contributions through employer contributions.
  • You plan to sell the business within the next ten years.
  • You have multiple clients and are outside IR35.

When to Choose an LLP

Choose an LLP if:

  • You are in a partnership with other consultants and want flexible profit-sharing arrangements.
  • You work through a single client and IR35 is a genuine risk.
  • You want simpler admin (no payroll, no corporation tax return).
  • You plan to distribute all profits each year and do not need to retain earnings.
  • You value the professional credibility of an LLP structure (common in law, accountancy, architecture).

Practical Steps to Decide

First, map out your projected profit for the next two to three years. Be realistic. Most consultants overestimate their first year income.

Second, decide whether you need to retain cash in the business. If you plan to invest in equipment, marketing, or staff, a limited company gives you more flexibility.

Third, assess your IR35 risk. If you are likely to work through a single client for more than 12 months, an LLP may be the safer option. If you have a diversified client base, a limited company is fine.

Fourth, think about exit. If you want to sell the business, a limited company is cleaner for BADR.

Finally, speak to an accountant who understands consulting businesses. The numbers in this article are general guidance. Your specific situation may tip the balance one way or the other.

If you want to explore your options further, our incorporation page covers the practical steps for setting up either structure. For a deeper look at limited company tax planning, read our limited company tax guide. And if you are currently a sole trader considering incorporation, our incorporation and structure blog has more detail on the transition.

Every consultant's situation is different. The right structure for you depends on your income, your client base, and your long-term plans. But the limited company vs LLP consultant comparison above should give you a clear framework for making that decision with your accountant.