Katy Proctor
Find by Heading
Running a trade in London through a limited company in 2026 is one of the most financially complex positions a business owner can be in — and one of the most rewarding when it's structured properly.
The overheads are unlike anywhere else in the UK. Van costs, congestion charges at £15 a day, ULEZ, commercial parking, premium material suppliers — these stack up fast before a single job is invoiced. On top of that, the financial mechanics of a limited company trade, CIS deductions, Corporation Tax, director salary and dividend strategy, VAT and domestic reverse charge — require an accountant who actually understands how a trade runs, not one who treats your business like a generic small company.
This guide is written for limited company tradespeople in London. It covers what you need to know, what you should be asking your accountant, and where the biggest tax savings consistently get missed.
Most accountants will file your returns, record your income and move on. What they won't do because they don't know how, is find the moves that are specific to how a limited company trade actually operates.
A specialist trades accountant understands:
The difference between a limited company tradesperson working with a genuine specialist and one working with a generalist can run to £3,000–£8,000 a year in unnecessary tax at typical London earnings. Over five years that's a serious number.
Pulse Accountants works exclusively with limited companies. Trades is one of the sectors we know well — electricians, plumbers, gas engineers, carpenters, decorators, roofers, landscapers and beyond. Our advice is built around how your business actually runs.
The Construction Industry Scheme applies to limited company tradespeople doing subcontract work within the construction chain — picking up work from main contractors, developers, property management companies or larger firms. If that describes any part of how your company operates, CIS applies.
Under CIS, the contractor paying you deducts a percentage from the labour element of your invoice and pays it to HMRC on your behalf. The deduction doesn't apply to materials, separately invoiced plant hire or VAT — only labour.
| Status | Deduction rate |
|---|---|
| Registered subcontractor | 20% |
| Unregistered subcontractor | 30% |
| Gross payment status | 0% |
Register before you pick up your first subcontract job. The 10% difference between registered and unregistered is not worth leaving on the table.
CIS deductions are calculated on gross labour before your company's expenses are taken into account. That means you're being taxed on turnover, not profit. The overpayment is offset against your company's PAYE liability — but only if it's managed correctly through your payroll position each month.
For a London limited company turning over £100,000 in labour income with £20,000 in legitimate expenses, the CIS withheld through the year can significantly exceed the company's actual tax liability. Reclaiming this promptly — rather than letting it sit with HMRC — is one of the highest-value things a good trades accountant does.
Limited companies with a strong compliance record, no history of late payments and turnover above HMRC's thresholds can apply for gross payment status — removing CIS deductions entirely. For high-volume London operations, this transforms cash flow. It's worth exploring once your company has a clean track record.
London creates a materially higher expense base than anywhere else in the UK — and every one of these costs is claimable through your limited company.
A London tradesperson regularly working in Zone 1 can accumulate £2,500–£4,000 a year in congestion charges alone. Every penny of that is a legitimate company expense. Generalist accountants regularly miss it.
Tools can either be expensed immediately through Annual Investment Allowance or treated as capital assets depending on cost and expected life. Getting the treatment right — and timing purchases correctly within your accounting year — affects when the tax relief lands.
Materials bought for jobs are fully claimable through the company. Where a client reimburses materials, the reimbursement is income and the cost is an expense — the net position is neutral, but both sides need to be recorded correctly.
On a London limited company trade turning over £80,000–£150,000, poorly captured expenses can cost £2,000–£5,000 in unnecessary Corporation Tax annually. The January scramble to reconstruct twelve months of spending from memory and bank statements is where money gets left behind. A proper cloud accounting setup with bank feeds and monthly reconciliation removes this entirely.
Running your trade through a limited company isn't just about liability protection — it's the most tax-efficient structure available to a growing tradesperson, and getting it working properly makes a significant difference to what you actually take home.
The core of limited company tax efficiency is paying yourself through a combination of salary and dividends rather than drawing everything as employment income.
The optimal director salary is typically set at the Secondary NIC threshold (£9,100 in 2025/26) — enough to qualify for National Insurance contribution credits without triggering employer or employee NIC. Remaining profit is extracted as dividends after Corporation Tax.
Corporation Tax is 19% on profits up to £50,000, rising on a marginal basis to 25% above £250,000. Basic rate dividend tax sits at 8.75%. The combined effective rate is substantially lower than the Income Tax and NIC a director would pay drawing the same amount as salary.
| Profit level | Effective tax rate (salary + dividends) | vs employment income |
|---|---|---|
| £60,000 | ~28% | ~37% |
| £80,000 | ~31% | ~42% |
| £120,000 | ~34% | ~48% |
These are indicative. The actual position depends on your personal tax circumstances, retained profits and the current year's rates. But the direction is consistent — and the saving compounds year on year.
Not all profit needs to be extracted immediately. Retained profits within a limited company are taxed at Corporation Tax rates, not personal Income Tax rates. For tradespeople reinvesting in equipment, vehicles or taking on staff, retaining profit in the company is more efficient than drawing it out personally and reinvesting from post-tax income.
A limited company structure makes your business easier to scale, easier to bring partners or employees into, and easier to sell if that's the long-term plan. The financial discipline required by a limited company — proper accounts, payroll, tax returns — is the same discipline that makes a business attractive to buyers and lenders.
The UK VAT threshold is £90,000 of taxable turnover in any rolling 12-month period. London limited company tradespeople — particularly those doing larger residential refurbishments, commercial work or operating in premium postcodes — hit this faster than expected.
Registration becomes compulsory above £90,000. But voluntary registration below the threshold can make sense for limited companies doing significant commercial or contractor work, where most customers are VAT-registered and can reclaim the VAT you charge. Voluntary registration also lets you reclaim VAT on your own purchases — materials, tools, van costs — from day one.
For companies working predominantly with domestic residential customers, the picture is more complex. Private homeowners can't reclaim VAT, so registering either adds 20% to your prices or compresses your margin. The right answer depends on your customer mix and growth trajectory, and it's worth modelling before you cross the threshold rather than after.
The Flat Rate Scheme — where you pay a fixed percentage of VAT-inclusive turnover rather than calculating net VAT on each transaction — used to offer a genuine financial benefit for tradespeople. HMRC's introduction of the limited cost trader rate (16.5%) in 2017 significantly reduced that benefit for businesses with relatively low material costs. In 2026, whether the scheme works in your favour depends on your specific cost structure. It's worth modelling against your actual numbers before committing.
If your limited company is VAT-registered and doing work for another VAT-registered contractor within the CIS chain, domestic reverse charge applies. Under this system:
This is one of the most commonly mishandled VAT rules in the trades sector. Getting it wrong — charging VAT where reverse charge should apply, or vice versa — creates compliance issues and potential penalties. If your company is both VAT-registered and CIS-active, this needs to be built correctly into your invoicing from day one.
Making Tax Digital for VAT has applied to all VAT-registered businesses since April 2022. If your limited company is VAT-registered, you're already required to maintain digital records and file through compatible software.
Making Tax Digital for Corporation Tax is in development and expected to expand the digital requirements for limited companies in the coming years. The direction of travel is clear: HMRC is moving everything onto digital reporting, and the businesses best placed for that shift are the ones that have already built proper digital bookkeeping habits.
A limited company trade running on Xero or QuickBooks with:
— is a business whose director actually knows their numbers. Not just at year end, not just when the accountant sends a summary, but month by month. That changes how you price, how you manage cash flow and how you make decisions about growth.
The limited company tradespeople who pay the least tax aren't doing anything clever. They're doing the basics consistently, through the year, with an accountant who stays ahead of the decisions rather than documenting them after the fact.
Salary and dividend timing — Getting the split right each year, timed to your actual drawings and the current rates, makes a consistent difference to your personal tax bill. This needs to be reviewed annually, not set once and forgotten.
Annual Investment Allowance — The AIA lets you deduct the full cost of qualifying plant and machinery — vans, tools, equipment — from profit in the year of purchase. Timing significant capital expenditure to land in the right accounting year can accelerate the tax relief by twelve months.
Employer pension contributions — Contributions made through your limited company are a Corporation Tax deduction. At 25% Corporation Tax, a £5,000 company pension contribution costs £3,750 after tax relief. For directors building long-term wealth, this is one of the most efficient vehicles available.
Electric vans — A new electric van qualifies for 100% First Year Allowances in the year of purchase. For a London tradesperson already absorbing ULEZ costs, the switch to electric also removes a recurring overhead. The upfront capital allowance and the ongoing running cost saving make this worth modelling seriously.
Director's loan account management — Money flowing between you and your company outside of salary and dividends creates a director's loan account. This needs to be managed carefully — overdrawn balances above £10,000 trigger benefit-in-kind rules, and unpaid balances at the nine-month point attract the S455 tax charge.
Congestion charges, ULEZ and commercial parking captured properly through the year add up to a meaningful deduction. For a London tradesperson working in central zones regularly, this can represent £2,000–£4,000 in annual expenses that need to be in the records — not reconstructed from bank statements in January.
Pulse Accountants works exclusively with limited companies. That's a deliberate choice that shapes every part of how we work.
We support ambitious limited company tradespeople who want more than compliance — business owners who want to understand their numbers, pay less tax legally, and build something that works harder for them over time. Electricians, plumbers, gas engineers, carpenters, decorators, roofers, landscapers and other trades across the UK work with us because we understand how a trade actually runs.
We have a London office at 368 Gray's Inn Road, King's Cross, alongside our head office in Newton Aycliffe and our Newcastle office. Limited company trades clients in London work with us directly and get the same level of advice as our largest clients.
Find out more about how we work with the sector on our [Tradespeople page], or learn more about our presence in the capital on our [London office page].
If you're running a limited company trade in London and you want a straight conversation about your CIS position, your current tax structure, whether you're extracting profit efficiently, or how to build a more tax-efficient business going forward, we'd love to hear from you.
Get in touch:
Website: pulse-accountants.co.uk
Email: help@pulse-accountants.co.uk
London office: 368 Gray's Inn Road, King's Cross, London
How much does a specialist limited company trades accountant cost in London?
For a limited company tradesperson with payroll, VAT and CIS, a monthly fee in the range of £150–£350 is typical for a specialist firm. The right question isn't what it costs, it's what it saves. For most London limited company trades at typical earnings, a good specialist accountant more than covers their fee in tax saved annually.
Can my limited company claim the congestion charge as a business expense?
Yes. Congestion charge, ULEZ and commercial parking costs incurred on business journeys are claimable through your limited company. For a London tradesperson working in Zone 1 regularly, this can add up to £2,500–£4,000 a year in legitimate company expenses.
What's the difference between CIS and VAT for a limited company?
CIS is a tax withholding mechanism — contractors deduct a percentage of your labour invoice and pay it to HMRC on your behalf, which is then offset against your company's PAYE liability. VAT is a separate consumption tax charged to your clients and passed on to HMRC. They operate independently but interact through the domestic reverse charge rules for VAT-registered limited companies in the CIS chain.
At what profit level does a limited company structure make sense for a tradesperson?
As a rough guide, once consistent annual profits exceed £30,000–£40,000, limited company structure starts to deliver meaningful tax efficiency. At London earnings levels, typically £60,000–£150,000+ for skilled trades running a proper operation, the annual saving through salary and dividend strategy can run to £8,000–£12,000 compared to drawing the same income as employment income.
Check out our Latest insights
View All
