Key Differences Between Sole Trader and Limited Company
| Feature | Sole Trader | Limited Company |
| Liability | Unlimited liability | Limited liability |
| Taxation | Income Tax on profits | Corporation Tax and dividends |
| Setup Costs | Minimal | Registration and admin costs |
| Compliance | Simple self-assessment tax return | Annual accounts and compliance |
| Credibility | Lower | Higher |
When to Choose Sole Trader
A sole trader structure is ideal if:
- You’re just starting out and want a simple setup.
- Your business carries minimal risk.
- Your profits are relatively low, and you want to avoid additional admin.
When to Choose Limited Company
A limited company is better suited if:
- You want to protect your personal assets.
- Your profits are high enough to benefit from lower Corporation Tax rates.
- You’re seeking investment or working with larger clients who prefer dealing with companies.
Tax Considerations
Sole Traders:
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- Profits are taxed as personal income under Income Tax rates (20%–45%).
- Subject to National Insurance contributions (Class 2 and 4).
Limited Companies:
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- Profits are taxed at the Corporation Tax rate (currently 25% in 2024). The 19% small profits rate will be payable by companies with profits of £50,000 or less. Companies with profits between £50,001 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective Corporation Tax rate.
- You can pay yourself a combination of salary and dividends, which can reduce personal tax liability.
How Accounting Wise Can Help
Still unsure whether to choose a sole trader or limited company structure? At Accounting Wise, we provide expert advice tailored to your business goals. From helping you register to managing tax compliance, we ensure your business operates efficiently.
The choice between sole trader vs limited company depends on your business size, goals, and risk appetite. By understanding the key differences and tax implications, you can make an informed decision.
