BUSINESS ADVICE • 12 JANUARY 2024 • 1 MIN READ
Sole trader vs private limited company business structures
Are you wondering whether it's time to make the switch to another business structure? Or perhaps you’re starting a new business, and trying to figure out the benefits of being a sole trader vs a private limited company? Either way, it’s easy to have loads of questions - which is where our guide comes in! Through this guide, we cover:​
- Key differences between sole traders vs private limited companies
- Differences in tax
- IR35 considerations and examples
- A checklist to help you make the right choiceÂ
Remember, if you're still not sure, it's always a good idea to speak to an accountant (you can always reach out to us!). Everyone's situation is different, and there's no one-size-fits-all answer when starting or managing a business.​
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Sole trader vs limited company guide
Sole trader vs limited company guide
Frequently asked questions
1. What's a sole trader?
One of the most common business structures in the UK, a sole trader is an individual who runs their own business and is self-employed. Examples include being a contractor or freelancer.
Read more: Business structures - what’s best for you?​
2. What's a private limited company?
A private limited company is also a common business structure in the UK. As its own legal identity, it is separate from its owners. The owners of limited companies are shareholders, and are not personally liable for the company's debts. A private limited company needs to meet compliance obligations such as filing financial statements, corporate tax returns, and confirmation statements. ​
3. What are the pros and cons of being a sole trader or a private limited company?
Being a sole trader means you can be your own boss, and setting up is relatively easy and cost-effective. However, you will have unlimited liability (in other words, personal risk). It can also be difficult to grow your business.​
Read more: Being a sole trader: the advantages and disadvantages.​
4. What are the differences between sole traders and private limited companies?
Here are some key differences: ​
- A sole trader is someone who runs their own business as an individual and is self-employed. A private limited company is a separate legal entity from its owners and directors.
- If you’re a sole trader, you’re personally liable for the debts of the business and can lose your personal assets if things go wrong. Limited companies, however, have more protection with limited liability.
- Sole traders pay income tax on their profits and need to file self-assessment tax returns every year. A private limited company pays corporation tax on its profits, and needs to file confirmation and financial statements.Â
- While private limited company business structures come with more paperwork and costs, they also are eligible for more tax benefits, with more opportunities for funding and growth. and reputation.
- Limited companies often have a more reputable reputation than sole traders.
5. Which business structure is more tax efficient?
It depends on your circumstances, and it’s always recommended to consult with an accountant. If you’re unsure, get in touch with a member of our team - we’re here to help!​
6. Which business structure should I choose?
When deciding whether to become a sole trader or a private limited company, you need to take several factors into consideration. These include your personal liability, tax implications, the costs involved, the level of control you’d like over your business, and funding options. ​
There’s no definitive answer to which business structure is better - it depends on your personal circumstances and preferences. Download our guide for more details.​
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Who are Beany?
We’re an online accounting firm that is always right here for you, your accounting pain relief. The most advanced technology lets us work way more closely with you than a normal accountant would. ​We have a dedicated team of certified accountants and a support team to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Get started for free today.​
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