Sole Trader vs. Limited Company: Which is Best for You?

What is a Sole Trader?

A sole trader is a self-employed individual who owns and operates their business. It’s the simplest business structure with minimal setup costs.

✅ Easy setup – Registering as a sole trader with HMRC is quick and straightforward.
✅ Full control – You keep all profits after tax and make all business decisions.
✅ Lower costs – Fewer legal and administrative obligations than a limited company.

Considerations for Sole Traders

❌ Unlimited liability – You are personally responsible for business debts.
❌ Higher personal tax – Sole traders pay Income Tax and Class 2 & 4 National Insurance Contributions (NICs) on profits.
❌ Perception – Some businesses prefer dealing with limited companies over sole traders.

What is a Limited Company?

A limited company is a separate legal entity from its owner(s). This structure offers protection against personal liability but involves more administrative duties.

✅ Limited liability – Your personal assets are separate from business debts.
✅ Tax efficiency – Corporation Tax (25% in 2025) is often lower than Income Tax for high earners.
✅ Business credibility – Having "Ltd" after your business name can enhance trust and attract corporate clients.

Considerations for Limited Companies

❌ More paperwork – Must file annual accounts with Companies House and submit Corporation Tax returns to HMRC.
❌ Public disclosure – Financial information is publicly available.
❌ Higher costs – Accounting and compliance fees are higher than for sole traders.

Key Tax Differences: Sole Trader vs. Limited Company