Starting a business often begins with the same question: Should I trade as a Sole Trader or set up a Limited Company?
It sounds simple, but both options work very differently and can affect your tax, your personal risk, and how your business grows.

This guide breaks everything down in a clear, straightforward way so you can make the right choice for your situation.

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What is a Sole Trader?

A Sole Trader is the simplest way to run a business. You just register with HMRC, record your income and expenses, and complete a Self Assessment each year.

Pros

• Quick and easy to start – no companies, no shareholders, no drama.
• Low admin – one tax return, basic records.
• Full control – you make all the decisions.

Cons

• You’re personally responsible if anything goes wrong.
• Higher tax once profits start growing.
• Harder to look “established” when approaching bigger clients.

A Sole Trader setup is ideal for freelancers, new businesses testing the waters, and anyone keeping things simple.

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What is a Limited Company?

A Limited Company is a separate legal entity. It can own money, get contracts, and pay you through salary and dividends.

Pros

• Limited liability – the company shoulders the risk, not you.
• Often more tax-efficient once profits rise.
• Looks professional for clients, banks, and suppliers.
• Allows profit retention for future investments.

Cons

• More admin – accounts, corporation tax returns, confirmation statements.
• Director duties to follow.
• Higher running costs than a Sole Trader.

A Limited Company works well for businesses earning higher profits, those taking on risk, or anyone planning to grow and hire in the future.

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So… which one is better?

There is no universal “best” option — it depends on your situation. Consider these factors:

1. Profit levels

• Lower profits = Sole Trader can be fine
• Higher profits = Limited Company may reduce your tax bill

2. Risk

• If your business carries financial or legal risk, a Limited Company offers protection.

3. Image and growth

• Some industries prefer working with registered companies.
• If you want to scale, invest profits, or bring in partners, a company is usually better.

4. Admin tolerance

• If you hate paperwork, a Sole Trader is simpler.
• If you don’t mind more structure (or have an accountant to help), a company gives more control.

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A light-hearted way to look at it…

• Sole Trader: You’re driving the business car on your own, windows down, simple dashboard.
• Limited Company: You’re driving a bigger car with more buttons. It goes further, but you need to read the manual.

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Real examples

• Electrician earning £20k–£30k
  A Sole Trader setup keeps things simple and cost-effective.
• Online seller earning £60k+ profit
  A Limited Company could reduce tax and allow profits to be reinvested.
• Freelance consultant dealing with large organisations
  A Limited Company may look more credible and reduce personal risk.

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Need help deciding?

Choosing the right structure can save you tax, protect you legally, and set your business up for the long term.

If you want personalised advice based on your numbers, we can look at everything for you and explain the best option clearly — no jargon, no Google confusion.