Tax Advisory
Sole trader or limited company?
The real differences, without the jargon.
Tax — the headline difference
As a sole trader, you pay Income Tax and Class 4 National Insurance on all your profits. A limited company pays Corporation Tax on its profits instead, and you only pay personal tax on what you actually draw out as salary or dividends. At lower profit levels, sole trader is usually just as tax-efficient and far simpler — a limited company tends to start saving you tax once profits climb past a certain point.
Liability — what's actually at risk
As a sole trader, you and the business are legally the same thing — your personal assets are exposed if the business can't pay its debts. A limited company is a separate legal entity, so your personal liability is generally limited to what you've invested in it.
Admin & cost
Sole trader: register for Self-Assessment, file one tax return a year, minimal cost. Limited company: a separate business bank account, annual accounts, a Corporation Tax return, and Companies House filings — usually worth having an accountant handle.
Which is right for you
There's no single right answer — it depends on your profit level, appetite for risk, and plans for the business. A big factor is how much of the profit you actually need to take out for yourself: a limited company's tax advantage largely comes from leaving money in the business, so if you need to extract most or all of it to live on, much of that advantage disappears. Other things worth weighing up include whether you're raising finance or bringing in investors, how you plan to eventually sell or wind down the business, and how much admin you're prepared to take on. It's worth running the actual numbers before deciding either way.
Not sure which structure suits you? Let's run your numbers and find out.
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