Business man deciding between sole trader and limited company registration

Having your own business is something to be proud of; it’s a huge achievement. As much as you’re pumped about starting your own business, there are lots of big decisions coming your way, one of which is no doubt whether to set up as a sole trader or opt for a limited company. Though being the conquering hero and managing your calls, texts, and email, while simultaneously making that cappuccino makes you a force to be reckoned with, that in itself doesn’t make the decision for you.

Knowing what to do (while doing everything can be) overwhelming and there is a LOT of information out there on the subject that can be equally overwhelming and confusing. But have no fear! Our nerds are here to share what you really need to know (no more, no less) to help you choose which fits you and your business needs.


Let’s begin by defining each, kicking off with what it means to be a sole trader.

What is a Sole Trader?

At its simplest, a sole trader is a self-employed business owner. Some may refer to themselves as freelancers, others as self-employed but the official term for both is ‘sole traders’.

Yes, you do get to benefit from all the profits of the business but at the same time you are also required to meet all the expenses and obligations. You can still trade as a brand and have a ‘trading as’ name but those obligations are all assigned to you as an individual.

A sole trader is required to register with HMRC for self-assessment tax, submitting annual returns (yes the dreaded 31 January deadline) and contribute regularly to Income Tax and National Insurance.

Before we dive into the many advantages and disadvantages of being a sole trader, we’ll briefly define a limited company and highlight the key differences.

What is a Limited Company?

When we speak about a limited company, we are referring to a separate legal entity, a business that is recognised as such and controlled by its shareholder(s) and director(s) – though they might be one and the same person If you want and if it fits with the structure of the business, you can choose to appoint additional directors and/or shareholders alongside you but you are not obliged to.

Directors of a limited company can be paid in either the form of salary or dividends (payments from profits) or you can also choose a mix of both. While, as a shareholder, you get to share in profits, responsibilities for business expenses and liabilities lie with the company alone it is legally responsible, rather than you the individual.

To register a limited company, you’ll need to submit details to Companies House as well as there being some set-up with HMRC.

Should I Take My Business Limited?

Now, while it is not one of the easiest decisions to choose between a limited company and being a sole trader, it might well be one of the most crucial ones.

1. You Get to Save on Taxes

Yes, you heard that right! As you shift from a sole trader to a limited company, you might be able to save taxes. You see, sole traders, when you calculate income tax plus national insurance contributions, end up paying 20-45% of their total profit and there are not many ways to lessen that amount. Limited companies pay 19% corporation tax (a lower rate of tax and no NIC).

2. Limited Liability – AKA Peace of Mind

If you are fairly risk-averse, you like to avoid debts wherever possible, and are keen to keep what you own, then a limited company could be just what you need. A sole trader is personally liable to clear any debt, however small or large. This means that in extreme cases, you may have to sell property in order to settle debts. But, with limited companies, the business is responsible for the debts, not the people running it. Sounds appealing, right?

3. Funding

Investors and banks are more inclined to invest in limited companies than lending to sole traders. Limited companies are often regarded as more robust businesses when compared to sole trading. Since there is a structure of shares, investing seems like a more convenient and secure option where investors are more likely to see their money back (at least if not a return on their money) through a percentage of profits.

4. Customer Perception

One thing is how the banks view you but also important is how your customers and potential clients view you. Customers see limited companies as more permanent, established and financially stable – perhaps even successful. This serves as an added level of assurance when they are asked to part with cash for what you have to offer.

5. Keeping things separate, e.g bank accounts, VAT registration

6. Disposal/sale of ltd company is much easier

Or Should I Stay Sole Trader?

Granted, we’ve outlined a number of pros in having a limited company but it doesn’t come without its drawbacks too. Stick around as we share the other side of the coin!


  1. There is extra admin around having a limited company. It’s certainly not for everyone!
  2. There are extra set-up and ongoing costs associated with running a limited company that you’ll want to consider.
  3. Some of your personal details will be out in the public domain – not being announced but not hidden either. This doesn’t mean you’ll have complete anonymity as a sole trader but it’s certainly more private than as a director of a limited company.

Drawbacks of Being a Sole Trader

Being a sole trader isn’t a bed of roses either. Let’s just revisit and highlight some of the disadvantages of sole trading:


  1. The first one simply has to be the complete liability. A sole trader in worst-case scenarios might have to suffer and give up their own personal assets in order to pay off liabilities associated with trading.
  2. A sole trader generally will have to work harder to reassure customers. There may also be other amenities or benefits that favour or are exclusively available to limited companies that may not be available to sole traders based just on the set-up.
  3. Sole traders often are not able to apply for tax reliefs.
  4. You will likely have to rely on your personal credit rating for loan purposes.

So… To Be Or Not To Be

Summing up there are some serious considerations that may tip you one way or the other. It’s not a straightforward decision but one we’ve done our best to simplify.

There are lots of factors to weigh up when thinking about registering a business or transitioning the way it’s set up. Yes, there are many benefits to going limited, which is why many sole traders in time do make the jump to limited. But it’s not for everyone.