Hi All, I've seen a few people posting here that aren't sure if they should be a sole trader or a limited company so thought I'd try and be of help. Commonly people aren’t too sure of the benefits of each and which route they should choose. There is no right or wrong answer as everyone’s needs are slightly different. So where to start, well firstly the sole trader option is more commonly used by freelancers as it doesn’t have the hassle or legal commitments that come with a limited company, some examples of influencing factors are: • Taxes • National insurance contributions • The type of business you run, or are thinking of running • What kind of administrative support you have, if any • What your turnover is and how much profit you make • Your future plans to grow the business, or not • What level of commercial risk you will be exposed to • Whether customer perception matters • What plans you have, or would like, for pensions and retirement The most important factor though is your personal preference and weather you may prefer to have a security a ‘limited liability’ company brings to you or if you’d prefer the simpler life. In summary below are the advantages and disadvantages of each. Sole Trader/ Self Employed • Advantages of being a Sole Trader o No cost to form a company o Low price accountancy fees o Only one simple tax return a year • Disadvantages of being a Sole Trader o Higher personal risk, as you are responsible for the company’s debts o Less opportunities for tax planning Limited Company • Advantages of a limited company o Your personal processions are not at risk o You may appear a little more professional o Some large companies will only work with limited company’s o Better tax planning options • Disadvantages of a limited company o You will have to pay to form a company o Your company records will be public o You will need to file accounts, company tax and corporation tax every year Anyway, hope that's of help. There's also a pretty comprehensive guide here if you want to read more. All the best & Good luck!
Obviously, there are a lot of tax advantages in trading through the limited company vehicle rather than as a sole trader. However, one tax advantage that a sole trader has is the greater flexibility in relieving trading losses, especially in the early years of the business.
Limited company is a better option business wise specially although it does not matter whats the taxes other things will apply.