Sole Trader Vs Limited Company?

Photo by Nick Morrison on Unsplash

It’s every freelancer’s first question when starting out. Should I become a limited company or a Sole Trader?

There are differences to either structure, especially when it comes to looking at what tax you will pay. This blog will go through further what you will need to consider when making the decision.

What structure suits you?

Sole Trader

A sole trader runs their business as an individual and is self employed. You will keep company records of income and expenditure related to the trade. 

You will be able to keep all of the company profits that are associated after you have paid tax on them through the completion of a Self Assessment tax return. Any losses that you make you as an individual you will be responsible for.

Limited Company

A limited company is a separate legal entity that you can form and run your business. As a director, you will have the responsibility of financial and legal obligations of the company. 

The company’s assets and liabilities are separate from your own personal finances. 

If you decide to set up a limited company, you will be a director and shareholder of the company. The way in which you pay yourself can be via salary and then dividends that are available from the company’s profits.

A limited company has more reporting requirements and must submit accounts with statutory bodies such as HMRC and Companies House. As the director, it is your responsibility that these are prepared and submitted to meet their obligatory deadlines.

Summary

In summary it's not an easy decision to make when setting up as a sole trader or limited company, There are pro’s and con’s to both. Much of it depends on your personal circumstances.

If you need any help or assistance, please contact us for a free consultation and one of the team will be in touch to discuss your needs further.