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Sole Trader or Limited Company?

One of the key challenges when making the decision to go freelance is to choose between becoming a limited company or simply setting up as a sole trader. Whilst there are benefits to going limited, many freelancers choose the sole trader option - primarily because they don't want the hassle or the legal commitments which come with a limited company.

The type of business you run, or are thinking of runningWe are often asked the question 'Should I form a Limited company?' but the reality is that there is no easy answer. Everyone's situation is different andwhat's right for one person might not be right for another. As well the obvious issues of tax and national insurance contributions, there are many other factors which might influence your decision for example:

  • What kind of administrative support you have, if any
  • What your turnover is and how much profit you make
  • Your future plans to grow the business, or not
  • What level of commercial risk you will be exposed to
  • Whether customer perception matters
  • What plans you have, or would like, for pensions and retirement

Lots of things to think about, and most important of all is your own personal preference. You might want the simplicity of being a sole trader rather than a limited company, or you might prefer the security of having ‘limited liability’. In order to make that decision you must have all the information at your fingertips, which is where Easy Accountancy can help.

For a quick summary on either being a sole trader or limited company, why not watch the below video:

Advantages and disadvantages

As with all major business decisions, there are pros and cons to each option. Here are some of the key advantages and disadvantages of freelancing as a sole trader, rather than through a limited company:

Sole trader / self employed – a' life more simple' and an easy way to start in business

  • No set up costs
  • No limited company formation fees
  • Lower priced accountancy fees
  • Less government departments to liaise with
  • Just submit a tax return once a year
  • The usual route most people take when just starting out
  • Higher personal risk - you will be personally responsible for the company’s debts, so your personal assets can be at risk
  • Less opportunities for tax planning – for example, if you make £60k this year and only £10k the next, you will still pay the higher rate this year as there is no opportunity to save untaxed money and remove the funds in leaner years. See our limited company illustration for an example of how a limited company gives improved tax planning options.

Limited company - a life 'slightly more complicated', but necessary for some!

  • Some customers, usually PLCs or larger limited companies, will only work with other limited companies which may mean you have to go limited
  • More costly starting up as you will have to pay to form a Limited company
  • You have to file your accounts at Companies House each year, which will be on public record
  • You also have to file accounts, company tax and corporation tax calculations with HM Revenue and Customs every year
  • Accountancy fees are generally more expensive
  • You are separate from the company, so your personal possessions may not be at risk, unlike if you’re self employed
  • You may appear to be a little more professional
  • Better tax planning opportunities - for example if you make £60k this year but only take £40k, you leave the other £20k in the business, thereby keeping under the higher rate tax threshold. If you then only make £10k the year after, you will still be under the higher rate tax threshold as you will have only withdrawn £30k (£10k from this year and the £20k you left the previous year).

If you wish to find out more about freelancing as a sole trader, then you may also be interested in the following pages:

If you are a contractor working through a limited company then visit SJD Accountancy (our sister company) which specialises in providing tax advice and accountancy services for limited company contractors. We also provide a tailored accountancy service for SMEs. For more information on this please call our New Client Services Team on 0500 234 111 or 01442 275 767.

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Why Clients Choose Easy Accountancy

Easy Accountancy offers a low cost, fixed fee accountancy package with all clients receiving their own dedicated, friendly, approachable accountant.

All of our accountants specialise in providing accountancy services to the self-employed, freelancers, sole traders, small to medium sized limited companies and private individuals. All accountants are employees of Easy Accountancy and we never outsource or offshore work.

Our low cost, all-inclusive fixed-fee accountancy service includes unlimited access to your own dedicated accountant throughout the year and covers all your business and personal tax affairs needs.

All our accountancy services include:
  - Unlimited access to your accountant
  - Ongoing advice on how to manage your business
  - Proactive tax advice throughout the year
  - Updates and reminders so you'll never miss a deadline
  - Free bookkeeping software

As a sole trader our fees start at just £30 + VAT a month, for this you receive the above plus:
  - Completion of your Self-Assessment tax return
  - Advice on how much Income Tax to pay
  - Guidance on National Insurance contributions

As a limited company our fixed fee packages are bespoke to your needs, however typically you’ll receive the above, plus:
  - Completion of your year end accounts*
  - Completion and submission of your annual return Companies House
  - The director/s Self Assessment tax return
  - Payroll bureau
  - Dividends and corporation tax computations

We’ve saved our clients up to half on their accountancy bills – if you’d like a quote, click on the quote me button to the right of this page. Alternatively, call us on 0500 234111 / 01442 275767 or email

*If you would like us to complete your company year end accounts we simply ask that you have been a client of Easy Accountancy for one year or have made 12 monthly payments.