When starting a business, one of the biggest decisions you’ll face is whether to operate as a sole trader or a limited company. The structure you choose affects your tax, legal protection, and even how professional your business appears to potential clients.
At Pixel Advertising, we work with growing businesses across the UK, and we know how important it is to get your setup right from day one. Here’s an easy guide to help you decide which structure fits your goals.
What Is a Sole Trader?
A sole trader is the simplest way to run a business. You and your business are one legal entity, meaning you keep all profits after tax but are personally responsible for any debts or losses.
If things go wrong, your personal assets, such as savings or property, could be at risk. However, setting up as a sole trader is quick and straightforward. You just need to register for Self-Assessment and file a tax return each year.
Pros of Being a Sole Trader
- You keep all profits after tax
- Simple setup with minimal paperwork
- Tax efficient for smaller profits
- First-year losses can offset other tax owed
Cons of Being a Sole Trader
- Unlimited personal liability
- Harder to raise business finance
- Less appealing to some clients
- Becomes less tax efficient once profits exceed £20,000
What Is a Limited Company?
A limited company is a separate legal entity from its owners. This means your personal assets are protected if the business runs into trouble. Shareholders and directors aren’t personally liable for company debts unless they’ve given a personal guarantee or committed fraud.
You can pay yourself through a salary and dividends, allowing for more flexible and often more tax-efficient income planning. However, a limited company comes with extra responsibilities, including annual accounts, Corporation Tax, and record-keeping.
Pros of a Limited Company
- Limited liability and asset protection
- More professional and credible image
- Easier to sell or transfer ownership
- Potential tax savings through dividends
- Option for multiple shareholders and directors
- Can make company pension contributions
Cons of a Limited Company
- More paperwork and annual filing
- Higher accountancy costs
- Complex tax and National Insurance rules
- Public information listed on Companies House
Tax Comparison: Sole Trader vs Limited Company
According to GoSimpleTax, if your profits are around £15,000 per year, being a sole trader can save you roughly £150 annually.
Once profits exceed £20,000, it becomes more tax efficient to register as a limited company, and the savings increase as your profits grow.
For example:
- £20,000 profit → save around £130 as a company
- £30,000 profit → save around £590 as a company
These savings should, however, be weighed against the additional time and cost of managing company accounts.
How to Choose the Right Structure for Your Business
Your decision depends on:
- How much profit your business makes
- How you want to pay yourself
- How much administration you’re comfortable managing
If you’re unsure, speak with an accountant or business advisor. They can help you work out which structure is most efficient for your situation and future plans.
Final Thoughts from Pixel Advertising
Whether you’re a sole trader or a limited company, one thing remains true: your brand identity matters. A professional logo and clear visual branding can build trust, attract better clients, and set your business apart. Read our Brand Guidelines Blog here
At Pixel Advertising, we help businesses look as credible as they operate. If you’re ready to take your brand to the next level, we can help.Get in touch with us today to give your business the professional edge it deserves.
