Sole trader or limited company? Answer five questions, get a straight answer.
Some of this comes down to tax. Some of it doesn't. We'll walk through both and tell you which structure actually fits your business.
Are you planning to raise outside investment in the next one to two years?
Angel investors, VCs, or schemes like SEIS and EIS.
Sole trader vs limited company: key differences
Frequently asked questions
There is no fixed figure. The difference depends on how much profit you take out, any other income you have and the extra costs of running a company, such as accountancy. Use the calculator above with your own numbers, and speak to an accountant before deciding.
Not always. A company pays Corporation Tax on its profit, and you then pay tax on the salary and dividends you take out. At lower profits, or if you take out everything, the saving can be small or disappear once company running costs are included.
Yes. You can incorporate a company at any time and move your business into it. You’ll need to tell HMRC you’ve stopped trading as a sole trader and update contracts, bank accounts and any VAT registration. Take advice on transferring business assets, as there can be tax consequences.
Yes. One person can be the only director and the only shareholder of a private limited company.
Yes. A sole trader and their business are legally the same, so you are personally responsible for any business debts. With a limited company, your liability is normally limited to what you’ve paid or agreed to pay for your shares, unless you give a personal guarantee.
Yes, if investors want shares. A sole trader cannot issue shares, and tax relief schemes such as SEIS and EIS only apply to qualifying companies.