Ltd Company Vs Sole Trader

As soon as you decide to establish a business, you will need to determine whether or not to form a new limited company or go it alone. Self-employment might take the form of a single proprietorship or a partnership, depending on your preference. Many new businesses begin as sole traders and subsequently transition to limited companies.


It’s essential to know the pros and cons of each company structure to make an informed decision. This knowledge would allow you to maximise profit, minimise risk, and grow your business more effectively.


This article will discuss each company structure to help determine which one is best for you.

Ltd Company

A limited company is a company structure in which it has its legal existence, distinct from its shareholders and directors. Even though a corporation has just one shareholder and director, it is still a legal entity in its own right. Your company will have a different legal identity from yours, and its money will be maintained separately from your own. As a director of your limited company, you will be protected from personal accountability for the company’s debts and obligations.


Take John, for example, who is the only director and shareholder of Swift Communication Ltd. When the company makes a sale, the money belongs to the company. Swift communication Ltd may give John a salary as a director or pay him dividends as a shareholder if it makes enough money. And it can reimburse him for any personal business expenses he incurs. Aside from that, if he withdraws funds from the company’s bank account, he may be subject to further tax.


It is possible to form a private limited company for any business, including a plumber, hairdresser or photographer. Shareholders are the owners of a private limited company.


  • If you ever choose to sell your company, you’ll have more options than you would with other business forms.


  • Nobody else can use your business name after you have registered it, unlike sole traders, who do not have the same protection (a sole trader, however, might register this as a trademark).


  • As a director of a limited company, you have the option of receiving a salary as well as dividends. It is possible to save a lot more money on taxes when you get dividends rather than salary since the tax threshold for dividends is lower.


  • If your company suffers losses or debts, all shareholders have limited accountability; it is not your duty. Your assets will not be at risk since you just have to lose the money invested.


  • To run your company, you’ll need a separate business bank account.


  • You must register for a PAYE plan with HMRC to get a salary.


Sole Trader 

A sole trader is a self-employed individual that runs their own business. Because a sole trader company lacks a legal status apart from its owner, many people believe you are the business. As a sole trader, you have complete control over your business, assets, and income after taxes. Along with this level of control, this business model provides relative simplicity, adaptability, and a variety of additional benefits. For example, although having a separate bank account for your company is a good idea, it is not a legal need. Business owners who offer specialised services, such as gardeners, carpenters, or builders, sometimes operate as sole traders.


  • For the sole trader, HMRC registration is free. 


  • The only documentation required is a self-assessment tax return every year.


  • Paying yourself does not need the establishment of a PAYE program.


  • In contrast to a private limited company, which has publicly available information, sole trading provides more anonymity.


  • As a sole proprietor, you are entitled to all of your company’s earnings.


  • You are responsible for any losses your business incurs and may be forced to use your own money to cover any obligations, which might result in the loss of personal assets.


  • It is more difficult to get capital. Banks and other investors favour limited companies, which may restrict the company’s ability to expand.


Ltd Company vs Sole Trader Comparison Table


Ltd Company  Sole Trader
The ownership of a limited company is divided into equal shares. A sole proprietorship is owned by a single individual who is personally liable for the business’s debts.
Using Pay As You Earn (PAYE), HM Revenue & Customs (HMRC) receives tax payments from directors’ wages. Directors are likewise required to file a tax return, regardless of whether any tax is due, provided they received no compensation or benefits of any kind. Corporation tax is imposed at a rate of 19% on all limited companies, regardless of their size. Sole traders use the self-assessment tax return method to pay taxes on their company earnings. Online tax returns must be submitted no later than the 31st of January after the end of the tax year.
Annual accounts must be prepared from the company’s financial records after the fiscal year. As part of the company’s tax return, these documents are submitted to HMRC and distributed to the shareholders and Companies House. Confirmation Statements for limited companies must be filed with Companies House, which contains information about the directors, shareholders and registration office. Maintain a record of company costs and revenue for tax purposes without submitting yearly accounts.
When you incorporate your company, you offer that your business has a solid foundation and is more respectable. However, this does not imply that they can be trusted. Because of the legal protection provided by a limited company, contractors and agencies in several industries may refuse to engage with sole traders.


What is Best for You?

Before deciding whether to be a limited company or a sole trader, you must examine the pros and cons of operating as a limited company and as a sole trader since the business structure you pick will influence everything from earnings to paperwork. Don’t hurry into any decisions and consult with an accountant if you’re concerned about anything since their knowledge and experience may be pretty beneficial for tax planning.

If you’re still unsure, please get in touch with us and one of our team here at J27 Accountants will help you.


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Dinah Jones

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