- Easy to set up – only need to inform HMRC of registering for self-assessment and to do this you only need your National insurance number
- Little paperwork required– the only filing required by HMRC for a self-employed person is the self-assessment tax return
- No information about your self-employed business available via Companies House
- A sole trader is responsible for all the liabilities/ debts of the company
- Taxes are normally higher than for limited company owner:
Available personal allowance of £12,500 (tax-free) up to £100,000 with a clawback afterwards
20% < £ 37,000
40% £ 37,501 – £150,000
45% £ 150,001 >
National insurance (class 2 and 4)
Class 2 – £3 per week
Class 4 Nil < £8,632
9% £8,633 – £50,000
2% £50,001 >
- If further financing is needed, this can be tricky. Banks prefer to lend money to limited companies as they have more information about them. Because of this, the sole trader may struggle with further expansion of the sole trade business.
- Distinct legal entity – separate from the owner’s assets. Meaning the business owner is responsible for the liabilities of the company only to the extent of the company equity
- Most of the time Limited Company allows better Tax management for the individual
If you chose to pay yourself dividends instead of salary the tax is more favourable: (first £2,000 taxed at 0%)
7.5% < £ 37,000
32.5% £ 37,501 – £150,000
38.1% £ 150,001 >
NI Class 1 employee
Nil < £8,632
12% £8,633 – £50,000
2% £50,001 >
- Both Sole Trader and Limited Company owners can claim expenses which are used wholly and exclusively for the purpose of trade. However, by claiming expenses for Limited Company this will decrease the profit which is used to calculate Corporation Tax.
- Moreover, a bigger range of tax allowable and deductible costs.
- Business name registered with Companies House, meaning no one can use it. This will help you in your business and brand growth.
- Information about the company available to everyone through Companies House
- More paperwork and responsibilities. You are required to file the annual return as well as annual accounts on top of your private self-assessment tax return
- Costs associated with hiring an accountant. As with the sole trading business, you might decide to manage the documents with HMRC by yourself that Limited Company might be more tricky and you might need to hire an accountant.
- If you decide not to hire an accountant you might need to consider the amount of time you need to spend on book-keeping etc.
Also, you need to bear in mind you can be personally responsible for filling dishonest information to HMRC, which may occurr due to your lack of accounting knowledge.
Moreover, for filling late accounts or other information required from a limited Company you might receive fines and penalties.
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