Sole trader or limited company, which is best for you?

If you are the only owner of your business, then you have a choice to make between running it as a sole trader or a limited company.

Setting up a business as a sole trader is the simplest and most popular form of business within the UK. Your business is entirely owned by you and is not legally separate to you. This may suit you very well, but it’s important to realise that this also means you have unlimited liability for the business. Any debts or lawsuits could mean your personal assets are at risk, including your home.

With any business (sole trader or limited company) it is important to have good terms and conditions in place, and consider professional indemnity and public liability insurance.

Limited Company

A limited company is legally a different entity from the person or people that own it. The company enters into contracts and the owner(s) have limited liability depending on the value of their investments in the company. All limited companies must be registered at Companies House.

Limited companies have significantly increased reporting requirements and compliance than sole traders do. There are penalties associated with failing to file accounts and tax returns by the deadlines (don’t worry, your accountant can help you).

Sole Trader

By contrast, setting up and running a business as a sole trader is relatively easy (from the accounting side at least!).  However, there are still processes that must be followed to ensure the business is compliant with all HMRC requirements.

So, is there a clear winner between a sole trader and a limited company? It depends on your business and we can offer advice for your specific circumstances (call us for a free no obligation chat). In the meantime, we have produced a handy (not exhaustive) summary table to help you consider your options.

Sole traderLimited company
There is no real distinction between the person and company.A limited company is its own legal identity.
You file a self-assessment tax return and pay tax on your business profits.You pay yourself a salary and/or dividends from the company. Tax is deducted via PAYE. As a director you are still required to complete a tax return, even if no tax is owed.
Tax payment dates are 31 January and 31 July.Corporation tax is payable 9 months after the year-end.
Personal allowances have been increased to £11,500. This is the amount that can be earned before paying income tax. For 2017/18 above this threshold, a sole trader/partner will be taxed at the following levels:

– The basic rate of 20% on income up to £33,500
– The higher rate of 40% on income between £33,501 and £150,000
– The additional rate of 45% on income over £150,000

For limited companies of any size, corporation tax is currently charged at 19%.
If your business turnover exceeds £85,000 then you must register for VAT.Same criteria as sole trader.
Sole traders are not legally required to file annual accounts for the business, but you still need to keep thorough records of business expenses and income in order to file your self-assessment tax return.A limited company must prepare statutory accounts, corporation tax returns along with a Confirmation Statement. Statutory accounts must be filed in accordance with strict Financial Reporting Standards. (the filing requirements depends on the size of the company).
Unlimited liability as the owner of the business.Limited liability as a shareholder of the business

PBH Accounting Ltd can look after all of the above for you, with specially designed Sole Trader and Limited Company accountancy packages. We offer advice and can tailor any of our packages to suit your industry and individual business.

Linda Richardson is just one of our happy clients “Paul and Abi know their clients and their accounts just by giving them your name. With my previous larger firm, it seemed as though a number of people were dealing with me and I never spoke to the same person twice!” 

Personal service every time

Contact us at or call 01223 291408