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Sole trader versus limited company
01 Jan

So you’ve had your big idea and you’re champing at the bit to get started. But, hang on,
first you need to think about your business structure. Should you become a sole trader or
go the limited company route? Here are some pros and cons to weigh up before making a

Is being a sole trader for you?

A sole trader is pretty much what it says on the tin – it’s just you, sole owner of the
business. And being on your own is pretty handy when you’re first starting up. It’s quick and
easy to register on the HMRC website and then it’s just a case of filing an annual Self
Assessment Tax Return. If you’re planning on running your new business part-time to begin
with, becoming a sole trade is a simple option for getting the ball rolling before you go all in.
And while we’re on the subject of simple, sole traders don’t have anywhere near as much
admin to contend with as limited companies. Completing a Corporation Tax Return, filing an
annual Confirmation Statement, maintaining a PSC Register, staying compliant with the
Companies Act – nope, you don’t have to worry about any of that.

Paperwork aside, being a sole trader means you can access money from the business
whenever you like, without any tax repercussions. So, hey, if business is booming and you
want to raid the bank for a celebratory holiday, go for it. On the other hand, if your business
suffers losses – and as a start-up, making a profit could take time – as a sole trader there are
ways you can offset those losses to reduce your tax bill.

That’s the good news about sole trading – now for some of the downsides. Any plans for
expansion could be thwarted as banks tend to look less favourably on sole traders than they
do on limited companies. If you get into debt you’re on your own – as a sole trader, any
money owing will have to come out of your pocket (rather than the company pocket). And,
though we don’t want to be morbid, when you die, your business is no more. Just
something to think about if you’re looking to start a family business.

Limited company – yes or no?

Think of a limited company as a thing of two parts – one part is the business, the other part
is you plus any shareholders and directors. In effect, the two parts are legally separate.
What exactly does that mean? Well, should your business go belly up, your personal assets
won’t be liable, just the money in the company’s coffers.

And that’s good news for another reason. Some contractors prefer dealing with limited
companies because if the business does go under, they can go to the ‘company’ part to get
their money. With sole traders, they risk not getting paid. Banks love a limited company,
too, because, well, they just come across as a bit more grown-up and sorted.

A limited company certainly gives the impression that it means business. You have to
register your name at company house – leaving you safe in the knowledge that a potential

competitor isn’t going to get their hands on it. And as a limited company your name will live
on after you’re gone – which is nice.

But it’s not all plain sailing as a limited company. There are tedious forms to fill in,
compliance issues to deal with, annual board meetings – not to mention financial issues like
getting taxed on any income that you take out of the company and the not so small matter
of corporation tax.

* Not sure which way to go? Fear not! There are a lot of pros and cons – too many for us to
mention here – so if you need help deciding, just call us on 0117 9502667 or email