Sole Trader vs Limited Company: Which is Best
25th April, 2025
When launching a consultancy or freelance business, one of the first and most important decisions you’ll face is whether to operate as a sole trader or limited company.
This choice affects your tax obligations, personal liability, administrative responsibilities, and long-term growth potential.
But with so much at stake, how do you decide which structure is right for you?
In this guide, we’ll help you find the right model for your business and show you how we can support you on your journey.
Sole Trader vs Limited Company: A Quick Overview
| Feature | Sole Trader | Limited Company |
| Legal Identity | Not separate from owner | Separate legal entity |
| Liability | Unlimited (personal assets at risk) | Limited (only company assets at risk) |
| Tax | Income Tax via Self Assessment | Corporation Tax, potential dividends |
| Admin | Simple & low-cost | More complex, higher costs |
| Privacy | Details not public | Director info published at Companies House |
For a deeper dive into how to get started, check out our step-by-step guide to starting a business.
Why Choose to Be a Sole Trader?
Many consultants and freelancers begin as sole traders due to the simplicity and low cost. With minimal admin, you can get started quickly and retain full control over your earnings.
However, you are personally liable for any business debts, which could put your personal finances at risk. If you’re earning under £50,000 annually and value flexibility, this route might suit you at first.
We offer tailored sole trader accounting support to make compliance straightforward and stress-free.
Why Go Limited?
Forming a limited company can be a smart move for consultants and freelancers who want to scale, improve tax efficiency, or enhance their professional image.
Key benefits of going limited include:
- Limited liability: Your personal assets are protected because the business is a separate legal entity
- Tax efficiency: You pay Corporation Tax on profits and can extract income through dividends (this may reduce your overall tax bill)
- Professional credibility: Many larger clients prefer working with Ltd companies due to the formal structure and legal protection
Our start-up support team can guide you through every step of company incorporation, making sure you’re set up correctly from day one.
For higher earners, particularly those taking home more than £100,000, our in-depth advice on tax planning options for limited company owners is an essential read.
Self-Employed vs Limited Company: The Tax Angle
The tax implications of operating as a self-employed vs a limited company are significant.
As a sole trader, you pay Income Tax and Class 2 & 4 National Insurance on profits.
In contrast, limited companies pay Corporation Tax (currently 25% for profits over £50,000) and can extract remaining profits as dividends, which may be taxed at a lower rate than salary.
Our team can assist with dividend tax planning to ensure you’re taking home as much of your hard-earned income as possible.
What About Business Expenses?
Imagine reducing your tax bill just by knowing what to claim.
No matter if you operate as a sole trader or through a limited company, claiming the right business expenses can unlock serious savings, and we’re here to help you do exactly that!
From travel costs and professional fees to marketing and home office expenses, you’re probably entitled to more than you think. Check out our guide to business expenses you can claim to make sure you’re not leaving money on the table.
Need help determining what qualifies? Our business service hub offers bespoke guidance and jargon-free guidance tailored to your setup.
Which is Best for You?
Ask yourself:
- Are you planning to grow and take on larger clients?
- Do you want to separate your personal and business finances?
- Are you earning (or aiming to earn) more than £50,000?
If the answer is yes to any of these, the limited company route may offer long-term advantages. However, if you’re starting small or testing a new business idea, the sole trader route offers a simpler and lower-risk entry point.
Let Haggards Crowther Help You Decide
Choosing between sole trader v limited company is a pivotal decision, and we’re here to help you make it with confidence.
At Haggards Crowther, we offer years of experience guiding consultants and freelancers through setup, tax efficiency, and beyond. From our new business mini guide to our in-depth start-up support services, we offer everything you need to hit the ground running.
Get in touch today via our contact page to book a free initial consultation and take the guesswork out of getting started.
Hamid has a wealth of experience advising owner-managed businesses across a wide range of issues, including the sale of businesses, value generation for shareholders, and formulating and advising on tax-efficient strategies. He’s also a specialist at helping start-up companies reach their full potential through teamwork, strategic thinking, and leadership.
His expertise spans technology, cryptocurrency, property investment, and various service-based industries, offering clients tailored solutions to navigate their unique challenges effectively.
