Sole Trader vs Limited Company

Should I incorporate or operate as a Sole Trader?  The main differences between the two are;

1. Sole Traders are personally liable for the business’s debts. Personal assets, such as your house and car, can potentially be used to pay your creditors.
2. Limited Companies are separate legal entities.
3. Initially, setting up a Limited Company is more expensive.
4. A limited Company can add credibility.
5. Leaving money in the business can be more tax efficient.

Things to consider……

Consider your expected level of income - how much will you pay yourself?

This is important because the level of income will determine the tax rate you will pay.  As a Sole Trader, all profits are taxed up to 55%.  As a Limited Company, only your salary will be taxed as an employee (up to 55%) not all the profits.

Tax Differences

As mentioned above, as a Sole Trader, all profits are taxed at income tax rates but as a Limited you are likely to pay Corporation Tax at 12.5%.

What does the future look like?

In many cases, registering as a Sole Trader is a suitable and even, an ideal option. It is easy to set up and close down, you can set it up as a side-hustle alongside your 9-5 job, and you can have peace of mind that your Revenue responsibilities generally don’t change.  However, if you have plans for growth, building a brand, or plan on creating a business that will still be around for future generations, then registering as a Limited Company is the clear option for you.

Limited Liability

If you are working in an industry that has a higher risk of you getting sued for damages due to error, setting up a Limited Company might be the safest bet for you.

Limited Companies have more red tape!

Keeping your company compliant with all the relevant rules and regulations is a lot of work. Make sure you have a company secretary who is aware of these various laws. Alternatively, let us be your company secretary and look after the compliance for your company.

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