Sole Trader or Limited Company

The sole trader or Limited Company decision is one you'll need to make when you become a contractor. Below, we've set out the key differences between the two.

Or call free: 0808 168 0422

Sole trader or Limited Company

At Boox, we’ll help you maximise your take-home pay whichever option you choose. If you opt for the Limited Company, we’ll set it up for you.

 [Download the guide, New to contracting]

 What is a sole trader?

A sole trader is someone who trades without a formal business structure.

Sole traders don’t have to submit an annual return or accounts to Companies House, so their profits or losses aren’t publicly available. They are required, however, to submit annual self-assessment tax returns.

The downside to running a sole trader business is that your liability is not limited. You’ll be personally liable for all work-related debt. You could lose your home, your savings and any other assets.

While generally better off than people on PAYE, sole traders don’t benefit from many of the tax advantages available to Limited Companies.

What is a Limited Company?

A Limited Company is a separate legal entity from the people who own it. When you set up a Limited Company your liability, should the business get into debt, is limited to the money you’ve invested in it. Anything you own personally is safe – unless you provide personal guarantees to lenders.

Information about Limited Companies such as annual accounts and names of shareholders is submitted annually to Companies House, who makes it available publicly.

Limited Companies are subject to corporation tax. As a director of a Limited Company, you’ll need to submit an annual corporation tax return in addition to your personal self-assessment income tax return.

 Benefits of a Limited Company

There are three key benefits to running a Limited Company:

  • More take-home pay – tax reliefs, allowances and employee benefits all add up. Plus, you can draw a low salary and take regular dividends. This gives you a higher net income than any other business structure.
  • A professional image – a Limited Company will enhance your stature in many industries.
  • Financial protection – you won’t lose personally if the business incurs debt.