Which business structure is the right one for you?

When it comes to starting your own business, one of the many decisions you need to make is what legal structure the business will take.
Typically, a new business owner will need to decide between trading as a sole trader or a limited company. There are other alternatives, but let’s stick to the more frequently used.
When deciding upon the structure you need to consider not only the reporting requirements of the structure but also your own strengths and weaknesses and commitment to running your new venture.

Why choose a sole trader structure?

This option is typically a no brainer for smaller businesses that are just starting out and are generating relatively low income
Sole traders pay taxes on the total profits they generate in their business. Taxes are paid via self-assessment and will include other sources of income that an owner receives, such as employment or rental property.


Simple set-up

  • A straightforward online set-up or a phone call to HMRC should suffice.

Tax complexity

  • Requirements for accounting are less complex.
  • Self-Assessment tax is arguably the easiest tax to calculate.

Great for part-time occupation

  • Great for short term self-employment or ‘hobby’ income.


Tax liability increase

  • Once your business profits go above £15k, your tax liabilities will exceed the amount you would be paying under a limited company structure.
  • No matter how much you draw out as wages full profits are taxed regardless.
    Other income can push tax into the 40% bracket.

Professional appearance

  • Perceived as less professional and so larger firms may not work with you.

Personal liability

  • Personally liable for any business debt.

Why choose a limited company?

Nowadays, setting up your own limited company is just as quick and easy and relatively inexpensive. However, the easiness of the setup is misleading and care should be taken if you do not understand the annual requirements of a company.

There has been an abundance of one-man-band limited companies set up in recent years to benefit from the potential tax savings over a sole trader. Generally speaking, a business earning profits of over £15,000 per annum will find their tax liability lower operating through a limited company.

However, the various reporting requirements, rules and regulations are complex to understand and mistakes in the operation of a company can lead to paying more tax than necessary or even penalties.

As a growing business generating increasing profits or, if the business owner has other income, a limited company is a very attractive option.


Tax efficiency

  • Tax savings can be significant compared with a sole trader structure.

Professional appearance

  • Perceived as a more professional operation.

Personal protection

  • Limited liability protection for your personal assets, as the company director.
  • Clearer separation between personal and business activity.



  • More rules, regulations and paperwork increases the complexity of the business.

Not a short term solution

  • Not ideal for short term or one-off work.

Increased management costs

  • Increased costs in running the business and annual returns must be done.

Which business structure is the right one for you?

Despite the different complexity levels of both business structures, this element is perceived as relatively negligible and can be quite easily outsourced and managed by your preferred tax specialist.

Normally, business owners will put more weight on the revenue they generate and the potential tax savings or liabilities this may carry.

Help and Support

As with any business decision, taking professional advice is always a wise option to ensure you fully understand the options and you take the right one based upon your circumstances.

What is IR35 - learn more about it

Limited companies

A guide to using your company

Tide bank account

All new applications for a Tide bank account will earn £100 cashback – find out more about Tide

Our packages

Digital - £11.95

Cost-effective, simple solution for those who do not wish to start trading just yet, or would like to register their new limited company as dormant.

Privacy - £19.95

Ensures your address will not be made public at Companies House. Protect your privacy with a registered office address or director’s home address.

Professional - £44.95


The perfect company formation solution that takes care of the heavy lifting of setting up your new limited company, with Companies House and HMRC.

All-Inclusive - £94.95

The perfect company formation solution that takes care of the heavy lifting of setting up your new limited company, with Companies House and HMRC.