Contracting limited company or sole trader

Are You a sole trader or a limited company?

If you operate as a sole trader, you are doing business as yourself. You and your business are inextricably linked, because you are one entity. If you operate as a limited company, you are the director of a company that is doing business. You and your business are legally distinct entities.

Should a contractor be a sole trader?

Plenty of contractors prefer being a sole trader because it’s easy to start up, and offers more flexibility. You’ll need to record all of your transactions (a process known as bookkeeping), and use this information to complete and submit your tax return on time. Are there any disadvantages to contracting as a sole trader?

Should I start a sole trader or a limited liability company?

Most business owners opt for a sole trader organisation when they begin as it is easier to set up and has a lower administrative burden. As a limited liability company, you and your business are separate legal entities. This means your business exists on its own.

Why does a limited company cost more than a sole trader?

Limited companies usually cost a little more to run, primarily because the accounting procedures are more onerous than for sole traders. Sole traders prepare a self-assessment tax return each year.

Can a small business switch from a sole trader to a limited company?

Many small businesses often start out as a sole trader business and eventually switch to a limited company once their earnings increase. You can find out exactly how to do this in our article 'How to change from a sole trader to a limited company.'

Is a limited company more tax efficient than a sole trader?

If you're expecting a profit of over £50,271, you might find it more tax efficient to operate as a limited company. Sole traders must pay tax on their business profits (minus expenses) and can be taxed up to 45%, whereas limited companies paying Corporation Tax are only taxed 19% on company profits.