Sole trader or limited company. It is one of the first decisions new freelancers face, and most people get it wrong — not because they pick the wrong structure, but because they pick it for the wrong reasons.
The default answer (and why it is incomplete)
Most accountants say: start as a sole trader, incorporate when you hit the higher rate tax band.
That is reasonable advice. But it misses some nuances worth knowing.
Sole trader: what you actually get
- Simple. Register with HMRC, file a Self Assessment return, done.
- No Companies House filings, no corporation tax return, no director responsibilities.
- Profits taxed as income — National Insurance on top.
- Unlimited liability. Your personal assets are on the line if things go wrong.
- Bank accounts, contracts, everything in your own name.
Works well if: you are testing a business idea, you earn under £50k, your work carries minimal liability risk.
Limited company: what changes
- Separate legal entity. The company owns the contracts, the bank account, the liability.
- You pay yourself salary + dividends. At the right split, this is more tax-efficient — typically from around £40-50k profit upward.
- More admin: annual accounts, confirmation statement, corporation tax return.
- Public filing. Your accounts go on Companies House. Anyone can see your revenue.
- Setup cost: £50 to incorporate. Ongoing: £800-1,500/year for an accountant who knows what they are doing.
Works well if: you earn consistently over £40k, you have liability concerns, you want to retain profits in the company.
The tax efficiency question
At £60k profit, a limited company typically saves £3,000-5,000 per year versus sole trader — after accountant fees. At £40k, it is marginal. At £30k, sole trader usually wins.
Calculator to check your specific situation: landolio.com/tools/sole-trader-vs-limited-company-calculator
The question nobody asks: what happens when you want to close?
Closing a limited company costs money and takes time. If you want flexibility to stop, pause, or pivot — sole trader is lower friction.
The checklist
The Business Structure Decision Pack (£9) covers the full comparison with a decision worksheet — useful if you are at the crossroads and want to think it through properly.
Did you start as a sole trader or go straight to limited company? What drove the decision?
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