Not necessarily, a Limited Company can result in you paying less tax. AND while a Company owner might lose their business – a Sole Trader (self-employed) can lose personal assets as well!
If profits are below about £12,000, acting as a Sole Trader makes very good sense. On profits above that, whilst tax will generally be at 20%, a Sole Trader must also pay around 9% National Insurance on their income above about £8,000 – whereas a Limited Company will pay virtually no National Insurance – but will pay an extra 7.5% income tax on dividends. This dividend tax has raised the level of income at which it is worth becoming a Limited Company. So there may not be much of a tax advantage until your profits hit about £30,000.
But, when profits rise above £46,350, Limited Company owners can also reduce their personal tax from the higher rate of 40% to as little as 20%, by keeping profits in the company till a later tax year – or by possibly making a spouse a shareholder in the Company. On profits of £80,000, this might save about £8,500 Income Tax.