One of the most common questions we get from new or growing business owners is this:
“Should I stay as a sole trader or set up a limited company?”
There’s no one-size-fits-all answer.
Both have their pros and cons, and what’s right depends on your income, your future plans, and how you want to run the business.
We work with a mix of both. Some clients stay as sole traders for years and it works just fine. Others make the switch early because it suits how they want to grow.
Here’s a balanced breakdown to help you understand what’s involved.
Staying as a Sole Trader
✅ What works well:
- It’s simple. Less admin, fewer formalities, and easier to manage day-to-day.
- Low cost to run. No company formation, no Companies House filings. Just file a tax return each year.
- More flexible. If your income is modest or unpredictable, it can be a lighter way to operate.
For someone just starting out or keeping things small and steady, this setup can make a lot of sense.
⚠️ What to consider:
- You’re personally liable. If something goes wrong, you and the business are legally the same. That means your personal assets could be at risk.
- You might pay more tax as you grow. Once your profits start rising, the tax position can become less favourable compared to a limited company.
- Less separation. It’s harder to keep personal and business finances clearly apart—which can cause confusion.
Going Limited
✅ What works well:
- Separate legal entity. You and the business are legally separate. That means more protection and clearer structure.
- Potential tax savings. Especially if you’re earning above a certain threshold and taking a mix of salary and dividends.
- More credibility. Some clients, suppliers, or contractors prefer to work with limited companies. It can help with perception and growth.
For people planning to grow, hire staff, or take on bigger work, going limited often makes sense.
⚠️ What to consider:
- More admin. You’ll need to file annual accounts, confirm your details with Companies House, and keep proper records.
- Director responsibilities. You’ve got legal duties now, not just day-to-day jobs to do.
- Less access to your money. You can’t just take money out whenever you like—it has to be done properly, through salary, dividends, or a director’s loan account.
A Real Example
One of our clients started as a sole trader doing domestic plumbing and boiler work. It was just him, and it kept things easy.
But as the work grew, he brought on a mate, then a van, then started doing commercial contracts. He got to the point where he was earning decent money—but the tax bills started creeping up. He was taking cash straight from the business, but hadn’t set up anything formal.
When we reviewed things, it made sense to move to a limited company. It gave him more structure, tax efficiency, and some protection if a job ever went sideways.
But we’ve also worked with decorators, cleaners and local trades who’ve stayed sole traders for years—and it suits them perfectly.
So, What Should You Do?
It comes down to a few key questions:
- Are you just starting out or already growing fast?
- How much are you earning—and is it likely to increase?
- Do you want to keep things simple or start building something bigger?
- Do you want legal protection if things go wrong?
If you’re making around £30k–£50k+ profit and planning to grow, it’s often worth looking at going limited.
If you’re still getting things off the ground or keeping it lean, staying as a sole trader might be easier—for now.
Either way, it’s not a one-way door. You can switch when the time’s right. The key is knowing what you’re working towards and getting the structure that supports it.
Need Help Deciding?
We work with both sole traders and limited companies—and we’ll always give you advice based on what suits you, not what looks best on paper.
If you’re unsure where you stand or want to talk through your options, get in touch.
We’ll break it down in plain English and help you make the decision that fits your business and your life.