Should I register a limited company, or should I stay as a sole trader?

I thought it might be useful to show the differences in a table format.

This table is only a summary, and you should read and consider the facts on the Government Gateway or consult with an expert before making a final decision.

Description	Sole Trader	Limited Company
Legal entity	All Income less expenses = Profits are taxed in self-assessment. Sole trader and individual are the same thing	Separate entity and separate accounts from directors and shareholders. Best way to separate the business from the individual. Can have multiple shareholders and directors, allowing for shared decision-making and ownership
Tax returns and documents to prepare	Prepare a self-assessment & profit and loss statement – submit to HMRC	Financial statements & Corporation tax return submit to Companies House and HMRC
Accounting versus Cash	Cash is not equal to net profit. You can choose to do cash or accrual accounting.	Cash is not equal to net profit. Accrual accounting only.
Salary and Drawings	Salary taken is not a tax-deductible expense	Salary taken (including PAYE) is expense. Director is an employee of the company.
Timeline	Only file once a year and that is a self-assessment – deadline is January. Prepayment is due in January and July based on the previous year’s tax liability divided in half.	Must file financial statements to Companies House once a year, submit a corporation tax return to HMRC, and provide a confirmation statement based on the company's registration date. Deadlines – 9 months after year end
How to register?	Easy to register – phone HMRC and register as sole trader and get a UTR or register online. Do this as soon as you have decided on starting trading as a sole trader. £1 000 tax free trading allowance	Register at Companies house a company and need to file confirmation statements yearly.
Income earned	Income belongs to the sole trader, and it is the sole trader’s responsibility to account for the business properly and make sure the deductible expenses are accounted for. HMRC will take the money received as income and tax will be calculated only on the income received if the taxpayer does not prove/show expenses.	The income belongs to the entity and not the individual. Directors are responsible for the running of the business and have a fiduciary duty to run the company properly in terms of the companies act. All drawings are taxed in the individual’s self-assessment return.
Tax deductible expenses	Tax deductible expenses: Expenses in production of income is allowed. Need to be able to prove that the expenses were in production of income i.e., slips, receipts etc. Home office expenses, travel expenses, training expenses, printing & stationery, subscription fees etc If you are a property investor, you can’t deduct the full interest expense as a tax deduction in your self-assessment (Restricting finance cost relief for individual landlords - GOV.UK (www.gov.uk) Etc (Expenses if you're self- employed: Overview - GOV.UK (www.gov.uk)	Tax deductible expenses: Expenses in production of income is allowed. Salaries paid Need to be able to prove that the expenses were in production of income i.e., slips, receipts, etc. Home office expenses, travel expenses, training expenses, printing & stationery, subscription fees etc You can deduct the full interest paid on your mortgage payments as an expense etc
Capital Allowances	Types: Annual Investment Allowance 100% first year allowance The super-deduction or 50% special rate first year allowance Writing down allowance	Types: Annual Investment Allowance 100% first year allowance Research and Development Allowance Business premises Renovation Allowance Structure and Building Allowance Writing down allowance
Accounting Package	Accounting Packages – Wave, Freeagent, Xero etc . Nice to have - Hubdocs	Accounting Packages – Wave, Freeagent, Xero etc. Nice to have - Hubdocs
VAT Registration	Only need to register for VAT when you exceed £90 000 turnover i.e. income. Consider flat rate scheme – easier to administrate or enquire about any other scheme available	Only need to register for VAT when over £90 000 turnover i.e. income. Consider flat rate scheme – easier to administrate or enquire about any other scheme available
Bank Account	Good to have a separate bank account for business purposes	Must have a separate bank account for business purposes
Naming	Sole trader alone	Business name will have a limited or ltd at the end Director and Shareholder are not the same as the company.
Other taxes and HMRC liabilities	Class 2 National Insurance if your profits are £12 570 (£3.45 a week) or more a year. Class 4 National Insurance if your profits are £12 570 or more a year (9% on profits between £12 570-£50 270 and 2% on profits over £50 270 Self-employed National Insurance rates - GOV.UK (www.gov.uk)	Dividend tax 8.75% on Basic Rate 33.75% on Higher Rate 39.35% on Additional Rate Allowance for 2025/2026 = £500 Tax on dividends: How dividends are taxed - GOV.UK (www.gov.uk)
Personal allowance or tax-free portions	£12 570 personal allowance	First £500 dividends are tax free in your personal capacity (but remember you would have already paid corporation tax). And this is changing each year.
Tax Rate	From April 2025, the personal tax bands in the UK are as follows: 0% (Personal Allowance): Up to £12,570. 20% (Basic Rate): £12,571 to £50,270. 40% (Higher Rate): £50,271 to £125,140. 45% (Additional Rate): Over £125,140 In Scotland, From April 2025, the Scottish Income Tax bands are as follows: 0% (Personal Allowance): Up to £12,570. 19% (Starter Rate): £12,571 to £15,397. 20% (Scottish Basic Rate): £15,398 to £27,491. 21% (Intermediate Rate): £27,492 to £43,662. 42% (Higher Rate): £43,663 to £75,000. 45% (Advanced Rate): £75,001 to £125,140. 48% (Top Rate): Over £125,140	Corporation tax rate at 19%. From the 1st of April 2023 – the corporation tax rate has increased to 25% for profits over £250 000. Dividends are taxed separately in the shareholders self-assessment and is paid out after corporation tax is paid in the company
CGT	From April 2025, the Capital Gains Tax (CGT) annual exempt amount (AEA) for individuals in the UK is £3,000 From April 2025, the Capital Gains Tax (CGT) rates for individuals in the UK are as follows: 18% on gains within the basic rate band. 24% on gains above the basic rate band For residential property and carried interest, the rates remain at 18% for gains within the basic rate band and 24% for gains above it Get a private home exemption when sold. From April 2025, Entrepreneurs' Relief, now known as Business Asset Disposal Relief (BADR), will see some changes: The tax rate on qualifying gains will increase from 10% to 14% The lifetime limit on gains eligible for this relief remains at £1 million This means that if you sell your business or shares and qualify for BADR, you'll pay 14% tax on the gains instead of the usual Capital Gains Tax rates.	No Capital Gains Tax. All assets sold are included in the Corporation tax return. Normal costs that qualify for tax deductions are allowed. No private home exemption.
Other important things	If HMRC is expecting a self- assessment and you don’t file a return, you will be fined.	SIC (section industry code) is important and this should reflect what your business does. If HMRC and Companies house is expecting a submission and you don’t file, you will be fined.
Continuity and Transferability	The business typically ends with the owner's death or retirement.	The business can continue even if ownership or management changes
Financial Reporting and Public Disclosure	No requirement to publicly disclose financial information.	Must file annual financial statements, which are publicly accessible

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