If you childmind from your own home, someone has probably told you that going limited would save you tax. For most childminders, it won't. It usually adds cost, adds admin, and quietly throws away the one tax break that's built specifically for your job.
This guide explains why, in plain English. It's for self-employed childminders in England, Wales and Northern Ireland who are weighing up whether to incorporate, and it uses 2025/26 figures throughout.
We'll cover what you'd actually lose, what (if anything) you'd gain, and the rare cases where a company can make sense. No jargon dumps, no scare tactics.
So should a childminder be a limited company?
For the overwhelming majority of home-based childminders, no. Staying a self-employed sole trader is simpler, cheaper to run, and lets you keep HMRC's childminder-specific home-cost rules and (until you're inside Making Tax Digital) the 10% wear-and-tear deduction, which a company can't use.
That's the short answer. The rest of this guide shows you why, so you can be confident the decision is right for your situation.
What's the difference between a sole trader and a limited company?
As a sole trader you and the business are the same legal person. You register with HMRC, keep records, and report your profit through Self Assessment once a year. The profit is yours, and you pay Income Tax and National Insurance on it.
A limited company is a separate legal entity. You'd set it up at Companies House, the company would own the childminding income, and you'd take money out as a salary, dividends, or both. The company pays Corporation Tax on its profit, and you file both company accounts and a Confirmation Statement with Companies House every year, on top of your own personal tax return.
Here's the part most people miss: HMRC's simplified expenses and the bespoke childminder rules are written for the self-employed. As gov.uk puts it, "If you run a limited company, you are not 'self-employed', even if you're the owner and sole employee." A company deducts its actual running costs against Corporation Tax instead. That single distinction is what drives most of the downside below.
Why does going limited hurt most childminders?
You lose the childminder home-cost percentages
HMRC has a long-standing agreement, set out in its childminder guidance and internal manual BIM52751, that lets self-employed childminders claim a slice of household running costs and fixed costs based on the hours they care for children each week. For someone working 40 or more hours a week, that's 33% of running costs and 10% of fixed costs, scaling down for fewer hours.
| Hours cared for per week | Running costs | Fixed costs |
|---|---|---|
| 10 | 9% | 3% |
| 15 | 13% | 4% |
| 20 | 17% | 5% |
| 25 | 21% | 7% |
| 30 | 25% | 8% |
| 35 | 29% | 9% |
| 40 | 33% | 10% |
(Source: HMRC BIM52751, 2025/26.)
This agreement is for the self-employed. A limited company can't use it. Your company would instead have to work out a genuine, evidenced business proportion of household costs, which is harder to justify when the "premises" is your family home that the company doesn't own.
You lose the 10% wear-and-tear deduction
HMRC also lets a self-employed childminder deduct 10% of their childminding income to cover wear and tear of furniture and household items, without keeping receipts for those items. On £20,000 of income that's a flat £2,000 deduction for very little effort.
A company doesn't get this. It can only claim the actual cost of items it genuinely buys and uses for the business. (Note: this 10% deduction is also being phased out for childminders once they move into Making Tax Digital, covered below, but while it applies it's a sole-trader-only benefit.)
You add real cost and admin
A company means annual accounts and a Corporation Tax return for the company, a Confirmation Statement at Companies House, usually a payroll scheme if you pay yourself a salary, and your own Self Assessment on top. Most childminders pay an accountant more to run a company than to run a sole-trade, and the time cost is real too.
You may have to re-register with Ofsted
This one catches people out. Per gov.uk, if you register your childcare as a new business with Companies House, "your legal structure changes and you will receive a new company or charity registration number. You will need to make a new application and pay an application fee for each setting affected by the change." Your existing Ofsted registration is attached to you as an individual, so incorporating can mean re-applying and paying again, and appointing a "nominated individual" responsible to Ofsted.
Do the numbers ever favour a company?
For a typical childminder, the company route usually costs more once you add the lost deductions and the extra admin. Here's a simplified, like-for-like illustration.
Illustrative example. Priya is a childminder working 40+ hours a week with £24,000 of childminding income for 2025/26. She has £2,000 of obvious direct costs (toys, outings, insurance, subscriptions) either way.
As a sole trader, she also claims the home-cost percentages on her household bills plus the 10% wear-and-tear deduction (£2,400 on £24,000 income). Those childminder-specific reliefs reduce her taxable profit before any tax is calculated. She files one Self Assessment return, and her Class 4 National Insurance kicks in only on profit above £12,570 at 6% for 2025/26.
As a limited company, the company can't use the home-cost percentages or the 10% wear-and-tear deduction at all. It pays Corporation Tax at 19% on its profit (the small profits rate for 2025/26), and Priya then has to extract that money as salary or dividends, with the dividend rate at 8.75% in the basic band for 2025/26 once she's used her £500 dividend allowance. She also pays an accountant to file company accounts, a company tax return and a Confirmation Statement.
In a case like Priya's, the lost childminder reliefs alone (£2,400 of wear-and-tear plus a meaningful share of household bills) typically wipe out any theoretical saving from the company structure, before you even count the extra fees. The "two layers of tax then admin" company model rarely beats the single, relief-rich sole-trade for a home-based childminder at this income level.
The figures above are illustrative. Your own outcome depends on your hours, your household bills, how much you need to draw, and your other income, which is exactly why it's worth checking rather than assuming.
What about Making Tax Digital from April 2026?
This is changing, and it matters for the decision, but it doesn't suddenly make a company the answer.
Making Tax Digital for Income Tax (MTD for Income Tax) is being phased in for sole traders and landlords, not companies. It applies based on your qualifying income, which is your combined gross self-employment and property income:
| Qualifying income | You must use MTD from |
|---|---|
| Over £50,000 (based on 2024/25) | 6 April 2026 |
| Over £30,000 (based on 2025/26) | 6 April 2027 |
| Over £20,000 (based on 2026/27) | 6 April 2028 |
(Source: gov.uk, "Check when to sign up for Making Tax Digital for Income Tax".)
Here's the childminder-specific twist, confirmed in HMRC's childminder guidance updated on 18 March 2026. Once a childminder is inside MTD for Income Tax, they can no longer use the bespoke hours-based percentages or the 10% wear-and-tear flat deduction. Instead they move to claiming actual costs, working out a reasonable business proportion of household expenses (for example by room usage or time). The hours-based table above stays available only to childminders who are not using MTD.
People sometimes read that and think, "if I'm losing the special rules anyway, I may as well go limited." That logic doesn't hold:
- Inside MTD, a sole trader still claims the actual business proportion of costs, and still files through Self Assessment with far less admin than a company.
- A company never had access to the childminder percentages in the first place, so going limited doesn't recover anything. It just adds Corporation Tax, dividend tax, payroll and Companies House filings on top.
- MTD doesn't apply to companies in this rollout, but companies have their own ongoing obligations that are at least as heavy.
So the April 2026 change is a reason to get your bookkeeping tidy and start tracking actual costs properly. It is not a reason to incorporate.
When might a company actually make sense?
There are narrow cases. A company can occasionally be worth considering if:
- You've grown into a larger childcare setting (for example day-care on non-domestic premises with several staff) rather than home-based childminding, where the home-cost reliefs were never the main driver anyway.
- You genuinely need limited liability protection for commercial reasons that go beyond ordinary childminding.
- You're building something you intend to sell or bring partners into, where a corporate structure has non-tax advantages.
Even then it's a judgement call, and the Ofsted re-registration point and extra admin still apply. If you're a one-person, home-based childminder, none of these usually bite.
Not sure which side of the line you fall on? It's a 20-minute conversation, not a leap of faith.
What should you do instead?
For most childminders the sensible path is to stay a sole trader and make the most of the structure you're in:
- Keep simple, consistent records of income and direct costs (toys, outings, insurance, subscriptions, mileage).
- Use the childminder home-cost percentages and, while you can, the 10% wear-and-tear deduction.
- Get ready for MTD by tracking your actual household business proportion now, so the transition is painless.
- Review the £1,000 trading allowance if your income is very small: gov.uk confirms that if your "annual gross trading income is £1,000 or less" you may not have to tell HMRC, and above that you can deduct the £1,000 instead of actual expenses if that's better for you.
We help childminders get this right, from first registration through to MTD. If you'd like a clear answer for your own numbers, learn more on our childminder accountancy page or book a free 20-minute call with a Zmartly accountant. You can also sanity-check the sole-trade side with our self-employed tax calculator.
Frequently asked questions
Will a limited company save a childminder tax?
For most home-based childminders, no. A company can't use the childminder home-cost percentages or the 10% wear-and-tear deduction, it pays Corporation Tax and then dividend or salary tax on money you draw out, and it costs more to run. Those lost reliefs usually outweigh any theoretical saving.
Do childminders lose HMRC's special expense rules if they go limited?
Yes. HMRC's hours-based household-cost percentages and the 10% wear-and-tear deduction are for the self-employed. A limited company is not self-employed, so it can only claim actual, evidenced business costs instead.
Does Making Tax Digital change whether I should incorporate?
No. MTD for Income Tax applies to sole traders and landlords, not companies, from April 2026 onwards depending on your income. Once inside MTD a childminder claims actual costs rather than the bespoke percentages, but a company never had those percentages anyway, so incorporating doesn't recover them.
Do I have to re-register with Ofsted if I set up a company?
Often yes. Per gov.uk, registering your childcare as a new business with Companies House changes your legal structure and creates a new company number, so you may need to make a new Ofsted application and pay the fee again, and appoint a nominated individual.
Can a childminder still claim wear and tear after April 2026?
It depends. Childminders who are not yet inside MTD for Income Tax can still claim the 10% wear-and-tear deduction. Once inside MTD, per HMRC's 18 March 2026 guidance, you move to claiming the actual cost of household items and furniture instead of the 10% flat deduction.
