Sole Trader vs Limited Company: What’s Best for You in 2025?
Starting a business in the UK is exciting, but one of the first (and biggest) decisions you’ll face is how to structure it.
Should you register as a sole trader, or set up a limited company?
The right choice can make a big difference to how much tax you pay, how you take money out of the business, and even how clients see you.
What is a Sole Trader?
Being a sole trader means you and your business are the same legal entity. You keep all the profits after tax, but you’re also personally responsible for any losses or debts.
It’s simple to set up, just register for Self Assessment with HMRC, and you can start trading right away.
Pros of being a sole trader:
Easy and cheap to set up
Less paperwork and admin
You keep full control of the business
Accounting is straightforward
Cons of being a sole trader:
You’re personally liable for debts
Fewer tax planning opportunities
Can look less professional to some clients
Higher tax rates once your profits grow
What is a Limited Company?
A limited company is its own legal entity. That means your personal finances are separate from your business finances.
You become a director and possibly a shareholder, and you can pay yourself through a mix of salary and dividends.
Pros of a limited company:
More tax-efficient once you earn around £30,000+ profit
Limited liability - your personal assets are protected
More credibility with clients and suppliers
Easier to raise finance or bring in investors
Cons of a limited company:
More admin and accounting work
Must file annual accounts and tax returns with Companies House and HMRC
You can’t just take money out freely - it needs to be done properly
Slightly higher setup and running costs
Professional Image and Growth Potential
Beyond tax, think about how you want your business to look.
Many clients, especially larger ones, prefer to work with limited companies as it can give your business more credibility. It also makes it easier to scale later, add partners, or sell the business.
If you plan to stay small and keep things simple, sole trader status might still be the right fit.
Costs and Administration
Sole trader setup: Free, done through HMRC.
Limited company setup: Around £12-£50 depending on how you register.
Accounting fees: Limited company accounts are more complex, so you’ll typically pay more for an accountant.
That said, the tax savings from a limited company often outweigh the extra cost once your business starts growing.
So, Which is Best for You in 2025?
If you’re just testing an idea or earning under £30,000 a year, starting as a sole trader keeps things simple.
If you’re planning to grow or want to save more on tax, a limited company is usually the smarter move.
Final Thoughts
There’s no one-size-fits-all answer. Your ideal setup depends on your income level, growth plans, and how comfortable you are with admin and compliance.
If you’d like to talk through your situation, we can help you decide what structure makes the most sense - and make sure it’s set up correctly from day one.
📞 Book your free call here — no pressure, just solid advice tailored to how you earn.