Should I be a Sole Trader or a Limited Company?

30th May 2024

It’s the question which many start ups ask themselves, ‘Should I be a Sole Trader or a Limited Company?’

It’s something that we here at Whitings are more than happy to advise on and help you with. So whether this is your first business venture or you’ve had businesses before, it’s always helpful to receive advice on what’s best for you and your current situation.

We know that a key aim of most SME businesses is minimising the tax paid on profits.

With the changes that came in with the budget the tax differences between a sole trader and a company have reduced. Therefore when starting in business considering the correct structure has become more down to the protection the company may offer, or the status and type of customers you will be working for.

The above does assume a full distribution of profits, if you are looking to reinvest the profits rather than withdraw them then there could be further savings to be made.

As well as the amount of direct taxation due on profits, businesses should consider a number of further matters before deciding which of the two trading mediums is best advice:

Other tax matters

IR35 tax,
Use of other family members’ tax allowances and reliefs,
Timing of tax payments,
The profit or loss profile of the business over time,
The loss of child benefit
Future, further unforeseen changes in tax rules.

Commercial matters

Protection,
Confidentiality,
Image and credibility in the marketplace,
Client expectations (particularly for consultancy assignments),

Cost and practical matters

Audit,
The additional administration work and professional fees as a limited company,
The discipline required in keeping personal finances separate from business finances,
Credit rating,
Use of certain words in the business name,
How long into the future that you believe the business will continue to trade.

Get in touch

If you would like to find out more about your specific situation and whether being a sole trader or a limited company is best for you, please contact your local Whitings LLP office today for a free initial consultation.