Being a sole trader is simpler and cheaper to run. A limited company separates your personal and business finances, limits your liability and can be more tax-efficient once profits reach a certain level — but comes with more admin and public filing.
The key differences
| Sole trader | Limited company | |
|---|---|---|
| Legal status | You and the business are the same | The company is a separate legal entity |
| Liability | Personally liable for business debts | Liability generally limited to what you invest |
| Tax | Income Tax and National Insurance on all profits | Corporation Tax on profits; personal tax on salary and dividends you take |
| Admin | Self Assessment return (plus MTD if in scope) | Statutory accounts, CT600, confirmation statement, payroll |
| Privacy | Accounts are private | Accounts and officers are on the public register |
| Taking money out | Draw whatever you like | Salary, dividends or loans, each with tax rules |
When a sole trader makes sense
- You're starting out or testing an idea
- Profits are modest
- You want minimal admin and cost
- Your work carries little financial risk
When a limited company makes sense
- Profits are higher and you don't need to draw all of them
- You want to protect personal assets from business risk
- Clients or agencies require you to work through a company (common for contractors)
- You plan to bring in investors or other shareholders
Tax is only part of the picture
Whether a company saves tax depends on your profit level, how much you take out, your other income and current tax rates — and the savings must be weighed against higher accountancy and admin costs. We'll model both options using your figures before you decide.
Ready to set up? See our company formation service, or read more about how we help sole traders and contractors.
Frequently asked questions
Is a limited company more tax-efficient than being a sole trader?
Often at higher profit levels, particularly if you don't need to draw all your profits — but it depends on your circumstances. We'll compare both for your figures.
Can I change from sole trader to limited company later?
Yes. Many businesses start as sole traders and incorporate as they grow. We'll handle the transition.
Does a limited company protect my personal assets?
Generally your liability is limited to your investment, although personal guarantees and director duties can still create personal exposure.
Official guidance: GOV.UK: Set up a business
Reviewed November 2026. This guide is general information based on rules at the date shown and is not advice for your specific circumstances. Tax rules change — contact us before acting.