Limited Company vs Sole Trader: Which Is Right for You?
One of the most common questions from new and growing UK businesses. The right answer depends on your income, risk appetite, and plans. Here is a clear comparison.
Written by: Ram Shah FCCA, Director of Ascot Accountancy — company formation specialist with 15+ years helping UK businesses choose the right structure.
Sole Trader: Pros and Cons
Advantages
- Simple to set up — just register with HMRC
- Minimal admin and paperwork
- Full control of your business
- All profits go directly to you
- Easier to wind down if needed
Disadvantages
- ✕Unlimited personal liability
- ✕Higher tax rates at higher incomes
- ✕Less credible to some clients
- ✕Cannot split income with spouse
- ✕Limited pension contribution options
Limited Company: Pros and Cons
Advantages
- Lower Corporation Tax rate (25%)
- Limited liability protection
- Tax-efficient salary/dividend mix
- More professional image
- Easier to bring in investors or partners
Disadvantages
- ✕More admin (Companies House filings)
- ✕Accounts are publicly visible
- ✕More complex tax position
- ✕Director duties and responsibilities
- ✕More expensive to run and close
When Should You Go Limited?
As a general rule of thumb, a limited company starts to become more tax-efficient when your profits exceed approximately £30,000–£40,000 per year. At this level, the Corporation Tax rate (25%) and the ability to take income as dividends (which carry lower NI) start to outweigh the additional admin costs.
However, tax is only one factor. You should also consider liability protection, your industry (some clients require Ltd companies), and your long-term plans for the business.
Not Sure Which Structure Is Right for You?
We advise on business structure daily. Book a free consultation and we will analyse your specific income and circumstances to give you a clear recommendation.
