What is a sole trader?
As a sole trader, you will register yourself as self-employed with HMRC, and at the end of each tax year you’ll need to report your income, expenses and tax liabilities via a self-assessment tax return
You will run your own business as an individual, which means that you are personally liable for any debts or losses made.
Responsibilities include:
- Keeping business records and proof of expenses.
- Filing your self-assessment tax return.
For more information on starting up, read our How to set up as a Sole Trader page.
What is a limited company?
Unlike a sole trader, a limited company is seen as its own legal entity and so is taxed separately from its directors, shareholders and employees.
This also means that owners have limited liability – should the business incur any debts or losses, then the owner’s personal assets are protected.
There will be additional taxes and obligations compared to a sole trader.
Responsibilities include:
- Keeping company records and proof of expenses.
- Report any changes to Companies House (such as a change of business address, directors or their personal details).
- File your accounts and your company tax return.
- Pay Corporation Tax.
Read our Starting up Checklist page for guidance on how to set up your own limited company.
Sole trader or limited?
There are both pros and cons to contracting as a sole trader and through a limited company, but the best route for you will all depend on your individual circumstances, as well as your expectations of how you want your business to progress.
Income will be a huge factor to consider; for example, if it’s at the lower end of the scale (typically under £25,000 per year) then it’s unlikely that a limited company would benefit you when you take administrative costs into account.
Something else to think about is whether your contracts are higher risk or put you at personal liability – if so, then having the protection of a limited company would come in handy.
If you do have plans to grow your business and want to hire staff, work with a partner or increase your future income etc., then having the structure of a limited company to begin with will also be helpful.
We hope you found this page helpful. If you have any further questions, our team of experts are available to answer any queries, so give us a call on 01442 795 100 or email jaime.thorpe@dolanaccountancy.com.