Sole trader vs limited company: which should you choose?

It’s the first real decision every new business owner faces, and it’s usually overthought. Here’s the honest version.

Sole trader: simple by design

As a sole trader, you are the business. There’s no separation between you and it.

The good: almost no setup — you just register for Self Assessment with HMRC. Minimal admin. One tax return a year. You keep things private (your details aren’t on a public register).

The catch: you’re personally liable for any debts. And once you’re earning a solid profit, you may pay more tax than you would through a company.

Best for: side hustles, freelancers starting out, anyone testing whether an idea has legs.

Limited company: more protection, more admin

A limited company is a separate legal entity. Your personal assets are protected, and above a certain profit level it’s often more tax-efficient.

The good: limited liability, a more credible look to clients and suppliers, and flexibility in how you pay yourself (salary + dividends).

The catch: more paperwork — annual accounts, a confirmation statement, Corporation Tax, and your details on the public Companies House register. Most people use an accountant.

Best for: businesses making a consistent profit, anyone taking on real financial risk, or those who want the credibility.

A rough rule of thumb

Many people start as a sole trader to keep it simple, then switch to a limited company once profits are steady (a common trigger point is around £30,000–£50,000 of profit, but it depends on your circumstances — this is where an accountant earns their fee).

There’s no wrong first choice. You can always change later.

The thing that matters more than the structure

Whichever you pick, the businesses that survive are the ones that know their numbers. Sole trader or limited company, you need to know what you’ve earned, what you’ve spent, and what’s actually profit — not just what’s in the bank.

Sedonis tracks exactly that from day one: invoices, expenses, and real profit, in one private app that’s free to start. When it’s time to file — or to decide whether to go limited — the numbers are already there.

Ready to register? Here’s how to set up a limited company step-by-step.

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General information, not financial or legal advice. Check GOV.UK and speak to an accountant for your situation.