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Sole trader vs. Limited company: Pros and Cons

In a nutshell
  • Being a sole trader is easier to manage.
  • Having a limited company protects you personally.
  • You can't be a sole trader if your business has multiple owners.
  • With higher profits, a limited company is more tax efficient.

What’s a sole trader?

A person that’s self-employed and NOT separate from their business.

Sole trader: the benefits

  • Simpler to set up and less admin than a limited company.
  • Your income is private between you and HMRC.
  • If low profits, it's more tax efficient.

Sole trader: the drawbacks

  • The owner is the business, so you’re personally responsible for debts.
  • If higher profits, you’ll pay more taxes.
  • Can only be one owner of the business.

What’s a limited company?

A registered business that’s treated separately to the owners.


Limited company: the benefits

  • You’re not personally responsible for debts.
  • If higher profits, it’s more tax efficient.
  • Easy to sell part of business to others.

Limited company: the drawbacks

  • More admin such as company filing, accounting, taxes, etc.
  • Financial information published publicly.
  • You don’t have direct access to profits – it needs to be taken as dividends.
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