Choosing a Business Structure for a Restaurant
Written and reviewed by the Hospitality Accountants editorial team. Last reviewed 27 July 2026.
One of the first decisions for a new restaurant is how to trade: as a sole trader, in a partnership, or through a limited company. The choice sets how you are taxed, how much personal risk you carry, and how much administration you take on. It is not permanent, but changing later has its own costs, so it is worth getting close to right at the start. This guide compares the three on the points that matter for a food business.
The tax difference comes down to income tax on the self-employed against Corporation Tax on companies, with the VAT threshold sitting on top of both. Below we set out the rates and the trade-offs. Where you want the decision made against real figures, our accountants for restaurants service models it for you.
Sole Trader, Partnership and Limited Company
A sole trader is one person trading in their own name, keeping the profits and carrying the risk personally. A partnership is much the same with two or more people sharing profit and responsibility. A limited company is a separate legal person: it owns the trade, pays its own tax, and shields the owners' personal assets from most business debts.
The company brings more administration, including accounts filed at Companies House and a Corporation Tax return, in exchange for limited liability and different tax treatment. The sole trader and partnership routes are lighter to run but expose personal assets.
Income Tax Bands for the Self-Employed
A sole trader or partner pays income tax on profits. Everyone has a personal allowance of £12,570 that is taxed at 0%. Above that, the basic rate of 20% applies up to £50,270, the higher rate of 40% from there to £125,140, and the additional rate of 45% above £125,140. Profits are taxed in the year they are made, whether or not the cash is drawn.
Because the rates rise with profit, a growing restaurant can find more of its profit taxed at 40% as a sole trader. The rates and bands are set out on the gov.uk income tax rates page.
Corporation Tax and the Marginal Rate
A company pays Corporation Tax on its profits instead of income tax. The small profits rate is 19% on profits up to £50,000, and the main rate is 25% on profits over £250,000, with marginal relief tapering between the two. The owners then pay personal tax only on what they draw as salary or dividends.
This split between company tax and personal tax on drawings is what can make a company more efficient once profits are steady, though it adds a layer of administration. The rates are published on the gov.uk Corporation Tax rates page.
The VAT Threshold Across Structures
VAT does not care about your structure. Once taxable turnover passes £90,000 in a rolling 12-month period you must register, whether you are a sole trader, a partnership or a company. Many restaurants reach this well before they would otherwise incorporate, so VAT registration and structure are separate decisions.
Splitting one business across two structures to stay under the threshold does not work: HMRC can treat artificially separated businesses as one. The safer plan is to expect registration as turnover grows and price for it.
Personal Liability and the Trade-Offs
Beyond tax, the real divider is liability. A sole trader or partner is personally responsible for the debts of the business, so a failed lease or a bad year can reach personal assets. A company limits that exposure to what the owners have put in, which is a meaningful protection in a sector with thin margins and heavy fixed costs.
The right answer depends on profit, risk appetite and plans to reinvest, and it interacts with reliefs such as those on a fit-out. We weigh the whole picture rather than defaulting to one form.