The headline trade-offs
| Sole trader | Limited company | |
|---|---|---|
| Setup | Register with HMRC | Companies House + HMRC, ~£12 fee |
| Liability | Personal — your assets at risk | Limited to company assets |
| Tax on first £50K profit | ~25-30% combined Income Tax + NIC | ~19-25% Corporation Tax + tax on dividends |
| Privacy | Your name not on a public register | Director details public on Companies House |
| Annual admin | Self Assessment | Annual accounts + Confirmation Statement + Corp Tax + Self Assessment |
| Mortgage applications | 2-3 years SA302s | Often more complex; specialist Ltd-co lender often needed |
When sole trader is the right answer
- Profit under £30K-£40K and likely to stay there.
- You want to spend everything you earn (no retained profit).
- You want minimum admin overhead.
- You're testing whether the business works at all.
- Your customers are individuals (B2C) and don't care about your structure.
When limited company is the right answer
- Profit reliably above £50K-£60K, especially if you don't need to draw all of it.
- You want personal liability protection — useful in higher-risk trades or if you sign large contracts.
- You sell to corporate clients who prefer to engage limited companies.
- You're considering bringing in investors, partners, or staff with shares.
- You want to retain profits in the company for future investment.
The grey zone: £40K-£60K profit
This is where it depends most on your circumstances. Mortgage plans (high-street lenders prefer 2 years of SA302s as a sole trader, but specialist Ltd-co mortgages exist), pension strategy, and whether you have a partner who could be a shareholder all swing the answer.
This is also where a 30-minute conversation with an accountant pays for itself many times over. We can match you with one for free.
Frequently asked questions
Can I switch from sole trader to limited company later?+
Yes. Many sole traders incorporate once profits justify it. The process involves transferring the business as a going concern; an accountant should handle it to avoid CGT and Stamp Duty pitfalls.
Do limited companies always pay less tax?+
No. Below ~£40K-£50K profit, sole trader and Ltd often produce similar take-home. Above that, Ltd often wins, especially if you don't draw everything. The maths depends on your dividend strategy and personal income.
Is limited liability worth the extra admin?+
If your business carries real risk — large contracts, products that could cause harm, employees — yes. If you're a freelance writer with low risk and small clients, the protection is rarely tested.
Tell us about your situation. We'll match you with the right specialist.
No fees, no obligation. We come back within 1 working day.