When you’re setting up your new business choosing the structure for your company set up can be hard to fathom. Two of the most popular structures are forming a limited company, and sole trading, also known as self-employment. Here we take a look at the differences between both types of business and compare running a limited company Vs being a sole trader: advantages and disadvantages.
Sole trader – advantages and disadvantages
A sole trader isn’t necessarily someone who works alone, you can still take on employees. As a sole trader though, you have sole responsibility for your business and your company is not distinct from yourself.
Working as a sole trader you can keep all of your profits after tax, but you are also liable for your business debts, which can put your finances and assets at risk.
As a sole trader, you will need to register with HMRC and complete an annual Self Assessment tax return. It is well worth keeping your business and personal financial affairs separate, helping you to distinguish between the two for this return.
Limited company – advantages and disadvantages
A limited company allows you to set up your business as a separate and distinct entity. As such, this protects your personal liability should your business go into debt or have a claim made against it.
While you do have less control over the profits of your business, after Corporation Tax has been paid, these can be shared as dividend payments. This is especially useful as it means that you can take a relatively low salary, attracting only the basic rates of PAYE and National Insurance, topping up with dividend payments at the end of each year.
As a director of a limited company, you’ll also be able to claim back expenses for items such as clothing and equipment, as well as travel and subsistence expenses, rather than paying for them yourself.
There are several different types of limited companies including:
- Private company limited by shares.
- Private company limited by guarantee.
- Public limited company.
Limited company vs sole trader
|Sole trader||Limited company|
|Is your personal financial liability protected?||X||✓|
|Would your business name be protected?||X||✓|
|Is it quick and easy?||✓||✓|
|Is it free?||✓||X|
|Do you need to complete a Self Assessment tax return?||✓||✓|
|Do you need to complete Companies House returns?||X||✓|
|Can you sell your business on?||X||✓|
|Is it tax efficient?||X||✓|
|Do you need to keep company accounts?||X||✓|
Your limited company – it’s all in the setup
One of the advantages of setting up a limited company is that, while there is a cost involved, this can be negligible. If you use a formation agent it can even cost less than your Companies House registration, while still including it. With our company formation packages, your company incorporation can be completed as quick as 24 working hours, depending on Companies House’s workload.
The first thing you need to do is make sure your business name is available to register, which you can do here. You then need to pick one of our formation bundles that suits your needs and once you’ve purchased your formation bundle, you then just need to complete our simple form.
The form includes your new company name and address, your directors’ and secretary’s details, plus the share capital and shareholders’ details. And while it’s an online process you’re not alone while you’re doing it either. Our support team can be on hand to help during office hours, either by phone, email or via online live chat to make your company formation as straightforward for you as possible.
Advice from the company formations experts
If you’re thinking of forming a limited company, you can access all the advice you need – from legal obligations and taxation to HR and marketing – over on our help centre or you can contact our expert customer support team who are on hand to answer any questions you might have.
Formation bundles for sole traders
Perfect for sole trader who wants to register as a limited company
Go limited for sole traders
Form a limited company and let us take care of all your regulator annual accounts, make any changes you need to your company directors, PSCs or share allocations.
- Digital Certificates
- PSC Online Register
- Digital register & minutes
- Business bank account
- Bookkeeping software
- Business phone Number
- Fraud protection
- Lifetime support
- Business hub manager
- Ltd company e-book
- Confirmation statements
- Company filling edits
- Accountant consultation
- Trademark consultation
+ VAT | PER YEAR
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