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Sole trader or limited company which is best for you ?

Updated: Aug 27, 2020

Congratulation for the first step to become your own boss. There are different structure which you can chose to set up your business. I am going to concentrate on Sole Trader vs Ltd company.


Limited as the title suggest your liability is limited to your shareholding in the company. For example if someone try to sue your company your liability is limited to the amount invested in the company. Lets say you are 100 percent shareholder of Example Ltd. You have bought the shares for £100. The claimant is suing your company for £100k, you will only be liable to pay £100 from your own pocket if your company can not cover the full £100k from company reserves.


As a Sole Trader there is not much difference between you and your company. Your business debts becomes your own debts. Taking the above example of £100k sue case, if your business can not cover the debts you will have to cover the claimant amount from your own pocket this includes your assets such as your own house.


Is it not bad as it sound from the above scenario. There are certain benefits which outweigh the ltd company.


Sole Trader pays tax on business income via completing self assessment return by 31st January after the end of financial year.


There are less compliance for sole trader vs Ltd company. Ltd company year end accounts need to be filled to company house and are visual on company house website. Sole trader accounts does not show on company house and only the owner's Accountant or HMRC knows about sole traders income information, It is not publicly available.


Sole trader pays £3 a week Class 2 NIC and Class 4 NIC on profit over £8,632 (2020/21)

ltd company will have to pay employer NI (13.8% earning above £8788.00) from company prospective and also from employee NI (12% earning above £9,500).


Ltd company can deduct donation as a expenses from the income which will reduce profit and less tax to pay. However sole trader/Self employed can not deduct the donation amount from their income.


Ltd company have to file confirmation statement each year where as there is no requirement for sole trader.


ltd company is more appealing in some sector where they would not do a business with a sole trader.


The list goes on. It is better to speak to an Accountant to find out what sort of structure will be beneficial for you. Get in touch S K Punia Accountant to find out more.


Other articles which may be beneficial for you

Tax Saving for Self employed


Tax Saving ltd Company Tips






Sole Trader VS Ltd Company for start up

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