In short
Being a sole trader is the simplest way to work for yourself: register with HMRC, file one tax return a year and keep your profits. A limited company is a separate legal entity that can limit your personal liability and may be more tax-efficient at higher profits, but brings more paperwork, public filings and director duties. Many people start as a sole trader and switch later.
The basic difference
As a sole trader, you and your business are legally the same. You keep all the profit after tax and are personally responsible for any business debts. As a limited company, the business is a separate legal entity: it earns the money, pays Corporation Tax, and you are paid as a director and shareholder. See set up a business on gov.uk.
Side by side
| Sole trader | Limited company | |
|---|---|---|
| Setting up | Register for Self Assessment with HMRC — free | Register with Companies House — a fee applies |
| Tax | Income Tax and Class 4 National Insurance on profit | Corporation Tax on company profit; you pay personal tax on salary and dividends you take |
| Paperwork | One Self Assessment return a year | Annual accounts, Corporation Tax return, confirmation statement, plus your own return |
| Liability | You are personally liable for business debts | Liability is usually limited to the company, though directors can still be personally liable in some cases |
| Privacy | Accounts are private | Company details and accounts are on the public register |
| Taking money out | All profit is yours to use | Money belongs to the company; you take it as salary or dividends under the rules |
Why most people start as a sole trader
- It is free and quick to set up — see how to register as self-employed
- Less admin, and accountancy usually costs less
- Simple to stop if it does not work out
- You can still trade under a business name
When people switch to a limited company
- Profits grow — at higher profit levels a company can sometimes be more tax-efficient, though changes to dividend tax and Corporation Tax have narrowed the gap
- Bigger contracts — some commercial customers prefer, or insist on, working with a company
- Taking on staff or more risk — limited liability gives some protection
- Bringing in a partner or investor — shares make ownership clearer
What setting up a company involves
You register a limited company with Companies House, appoint at least one director, and register for Corporation Tax with HMRC. Directors take on legal responsibilities, and must now verify their identity with Companies House.
Fees and tax rates change, so check the current Companies House fees and Corporation Tax rates on gov.uk.
Either way, you can list on Holler and get paid through Stripe to a UK bank account.
Questions people ask
Is it better to be a sole trader or a limited company?
For most people starting out, a sole trader is simpler and cheaper to run. A limited company can make sense at higher profits, with bigger contracts or more risk. Get advice for your own numbers.
When should a sole trader become a limited company?
There is no single profit level. People usually consider it when profits grow, when customers ask for a company, or when they want limited liability. An accountant can compare both options for you.
Can I switch from sole trader to limited company later?
Yes. Many people start as a sole trader and set up a company later. You register the company with Companies House and tell HMRC you have stopped being self-employed.
Does a limited company protect my personal assets?
Usually it limits your liability to the company’s assets, but not always — for example, if you personally guarantee a loan or break your duties as a director.
Keep reading
How to register as self-employed in the UK
How to register as self-employed with HMRC: when you need to, the 5 October deadline, getting your UTR, Self Assessment and the records you must keep.
Self-employed tax in the UK, explained plainly
Self-employed tax in the UK explained: Income Tax, Class 4 National Insurance, the £1,000 trading allowance, expenses, payments on account and key deadlines.
How to start a cleaning business in the UK
Start a cleaning business in the UK: registering as self-employed, insurance, DBS checks, pricing, supplies and finding your first customers — step by step.