As a sole trader, you’re personally responsible for any debts the business incurs, which means your personal assets are at risk if things go wrong. In contrast, with a limited company, your liability is limited to the company’s assets, offering a layer of personal protection.
Taxation also differs. As a sole trader, your profits are subject to Income Tax and National Insurance, whereas limited companies pay Corporation Tax, which is typically lower than higher-rate Income Tax. However, you may also face Income Tax on any salary or dividends you draw from the company.
In terms of control and complexity, being a sole trader is often simpler to manage, with fewer reporting requirements and less administration. A limited company, however, requires more paperwork and formal obligations, like filing annual accounts and company tax returns. Despite the added complexity, limited companies often appear more professional to clients and investors, which may boost your reputation and, in some cases, open doors to funding options that are less accessible to sole traders. Additionally, having a limited company may enhance your credibility when dealing with B2B firmographic data, potentially leading to more opportunities in the business sector.
