Sole trader vs limited company: which is right for you?

The quick version

As a sole trader, you and your business are legally the same thing. It's simple to set up and run, but you're personally responsible for any debts. As a limited company, the business is a separate legal entity — which can save tax and protect you personally, but comes with more admin and stricter rules.

Tax: the headline difference

Sole traders pay income tax and National Insurance on all their profits, at 20%, 40% or 45% depending on earnings. Limited companies pay corporation tax on profits — 19% on profits up to £50,000 and 25% above £250,000, with marginal relief in between — and directors typically take a mix of a small salary and dividends, which can be more tax-efficient once profits reach a certain level.

As a rough guide, incorporating often starts to pay off once profits are comfortably into the £30,000–£50,000 range — but it depends entirely on your circumstances, so it's worth getting the numbers run for you.

Liability and protection

• Sole trader: you're personally liable for business debts — your own assets could be at risk
• Limited company: your liability is generally limited to what you've put into the company, protecting personal assets
• This protection matters more in higher-risk trades, or where you take on significant contracts or credit

Admin and privacy

• Sole traders have minimal paperwork — just an annual Self Assessment return
• Limited companies must file annual accounts and a confirmation statement with Companies House, plus a corporation tax return
• Company accounts and director details are publicly visible on the Companies House register; sole-trader finances stay private
• Running a company also means following company law and director duties

So which should you choose?

There's no one-size-fits-all answer. Many businesses start as a sole trader for simplicity and incorporate later as profits grow. The right move depends on your profit level, your attitude to risk, whether you need limited liability, and your plans for the future.

This is exactly the kind of decision we'll talk through with you properly — running the actual numbers for your situation rather than relying on rules of thumb. Take a look at our sole trader and limited company services, or get in touch for a free chat.