It's one of the first big decisions any business owner faces, and one of the most common questions we're asked in Nottingham: should I stay a sole trader, or set up a limited company? There's no one-size-fits-all answer - but here's what actually drives the decision.
The quick version
- Sole trader is simpler and cheaper to run, but you and the business are legally the same person.
- Limited company can be more tax-efficient and protects your personal assets, but comes with more admin and public filing.
Liability: whose money is on the line?
As a sole trader, there's no legal separation between you and your business. If the business owes money, you owe it - potentially including your personal savings and home.
A limited company is a separate legal entity. Your liability is normally limited to what you've put into the company. For anyone taking on real financial risk, contracts or debt, that protection matters.
Tax: where it gets interesting
A sole trader pays Income Tax and National Insurance on all business profits through Self Assessment.
A company pays Corporation Tax on its profits (19% on profits up to £50,000, tapering up to 25% above £250,000 in 2025/26). Directors then typically take a small salary plus dividends, which - with the right planning - can result in less overall tax than the sole trader route once profits reach a certain level.
As a rough rule of thumb, the limited company route often starts to pay off once profits are consistently above roughly £30,000–£40,000 - but it depends entirely on your circumstances, so it's worth running the numbers properly.
Admin and privacy
A company means more responsibilities: annual accounts and a Corporation Tax return, a confirmation statement, running payroll for your salary, and your details on the public Companies House register. A sole trader just files one Self Assessment return a year and keeps their affairs private.
Credibility
Some clients, suppliers and lenders simply take limited companies more seriously - and certain contracts (especially in construction and consultancy) may require you to be one.
So which should you choose?
Ask yourself:
- How much profit am I making - and where is it heading?
- How much personal risk am I exposed to?
- Do my clients expect a limited company?
- Am I comfortable with the extra admin (or happy to pay someone to handle it)?
We'll give you a straight answer
At TaxMag we look at your actual figures and tell you what genuinely suits you - not what earns us the bigger fee. And if a company is the right move, we'll set it up properly from day one. Get in touch for an honest chat.
This article is general information, not tax advice. For a recommendation based on your own numbers, talk to us.