Limited Company or Sole Trader, Which is Better?

Being a sole trader is the easiest way to start your own business and keep control of it. Running your own business as a sole trader can be great fun with a lot of personal freedom to make money. You don’t have the element of partners or shareholders to pay or share profits with, so you’ll have full ownership of profits.

If you’re a sole trader, the good news is that your tax responsibilities can be relatively straightforward. You don’t pay Corporation Tax and have no annual accounts to submit to Companies House. But sole traders need to submit a Self-Assessment Tax Return once a year and pay the relevant amount of tax and national insurance. Bear in mind that the reporting requirements for sole traders will change due to Making Tax Digital.

Advantages:

➡️ Simple to get started and operate
➡️ You don’t need a business bank account (although it’s strongly recommended)
➡️ Full control and more flexibility
➡️ More privacy than a limited company
➡️ Fewer legal requirements
➡️ Less paperwork
➡️ Ease of changing the structure of your business

A sole trader has much less paperwork and reporting requirements than a limited company. But it’s important that you take responsibility for all aspects of running the business and protecting your personal assets because if things go wrong you are personally liable to the fullest extent permitted by law.

Disadvantages:

➡️ Full liability (for you and your personal assets)
➡️ Raising capital can be limited
➡️ Taking time off or holidays can be difficult
➡️ Less flexibility when it comes to tax
➡️ Building a good reputation can be difficult

There’s no single answer that applies to everyone because choosing to be a limited company or a sole trader will depend on your personal circumstances. It’s not only a matter of which business structure will help you save more money because there are a lot of other aspects that play a part in the overall success of your business.

Here at Joanna Bookkeeping, we offer expert advice when it comes to making decisions about which business structure is right for you, so that you can focus on what’s most important, growing your business. Our team of professional accountants provide expert bookkeeping and accounting services, so you don’t have to worry about it! We work with all types of companies, from small businesses run out of homes to established enterprises.

Book a FREE call and have a chat with our Oxford-based accountants to learn more about how we can help your company succeed. PLUS – because we’re fully digital, we offer services to businesses all over the UK!