Should I set up as a Sole Trader or a Limited Company?

Limited blog header

When should I go Limited?

It’s decision time – are you going to follow that dream you’ve always had? Are you going to start your own postal brownie service? Retrain as a dog groomer? Sell your artwork? Go it alone after spending your life putting money in someone else’s wallet?? (As Dolly Parton once said..!)


Obviously, we hope that answer is a big, fat YES!


That’s one decision down, and before you get to the point of owning your own private jet, or living on an island with Taylor Swift, there will be a few more decisions to make .. one of which that will crop up early is – should I set up as a Sole Trader or a Limited Company?

We are just going to talk about the tax in this blog, but there are lots of other considerations to make too!


So, if you are keeping your main employment, and getting paid well from it, and your dream is a bit of a side hustle for now, then thi answer may surprise you!

You’re probably better off incorporating.

If you’re using up your tax-free personal allowance within your employment, then you are going to be paying 20% (or more!) tax on ALL PROFIT YOU MAKE as a sole trader. 

And so, if you’re making enough elsewhere to not need that money, then setting up a Limited Company could be a more tax efficient option for you.

You can choose to leave the profit (after corporation tax) in the business as ‘retained earnings’, for a rainy day, or for when you work on this business full time.

As a company Director, you’re entitled to £500 a year in tax-free dividends! And, if you have a significant other, or trusted friend etc, you can appoint them as a Company Director as well, meaning that they too can have £500 in tax-free dividends…!

Any Dividends over the tax free amount are taxed at 8.75% (and 33.75% if your total earnings are more than £50k)


Hopefully that’s sorted some of you out! Now, for the rest of you lot, who are already working full-time on your own business, the answer may not be so cut-and-dried.


In a very rough sense, once your business is making profit over and about the tax-free amount (£12570), it’s time to look at where you’ll pay less tax:

Tax & National Insurance as a Sole Trader?

Or Corporation & Dividend tax as a Limited Company Director?

All things tax return are discussed in our blog here!

(and by the way, when you book a Discovery Call with us, we’ll go over this in detail)


And, if there will be 2 or more of you involved in the business, then incorporating from the beginning is almost a no brainer.


In the name of transparency, we do need to point out that incorporating will likely incur higher fees in terms of accountancy, and potentially other areas, than being a sole trader would. That’s why there really is no ‘one size fits all’ approach here! And also why we would love to have a chat with you about your specific circumstances, to see what would best suit you and your lifestyle.


But it’s not ALL about tax & dollah. Your next read should be 5 non-money considerations in the ST vs Ltd debate.