This interactive webinar in July 2025 explored the key differences between operating as a sole trader and running a limited company, with the aim of helping attendees understand which structure best suits their business needs.Areas discussed are summarised below.

Legal structure and responsibilities

Sole traders and limited companies are treated very differently under UK law. A sole trader is the business, meaning their personal and business assets are legally intertwined. A limited company, on the other hand, is a separate legal entity with its own obligations under company law and must report its accounts to Companies House and HMRC.

Liability and risk

Sole traders have unlimited liability, which means their personal assets are at risk if the business fails. Limited companies benefit from limited liability, offering personal protection to shareholders, provided the company is run lawfully.

Privacy and reporting changes

From April 2027, all limited companies will be required to file full profit and loss accounts online, which could reveal sensitive financial details. Conversely, sole traders submit private personal tax returns, seen only by HMRC and their accountant.

However, from April 2026, sole traders with sales above £50,000 will need to report income quarterly under Making Tax Digital.

Tax considerations

Several examples demonstrated that the tax benefits of being a limited company are no longer as clear-cut as in the past. For many, particularly those earning under £70,000 in profits, the difference in take-home pay between sole trader and limited company is minimal. In some high-income scenarios, sole traders can even take home more than limited company directors.

Pensions and tax efficiency

One area where limited companies still have an edge is pension planning. Employer pension contributions made by a company can reduce corporation tax and dividend tax, potentially making incorporation more worthwhile for those willing to make significant pension contributions.

Funding and credibility

Limited companies may find it easier to attract external investment and are often perceived as more credible when working with larger organisations. They also tend to be easier to sell or pass on, as the business can continue independently of its owner.

Flexibility

Limited company directors can decide how much income to withdraw and when, providing flexibility in tax planning. Sole traders are taxed on the full profit, regardless of how much they draw from the business.

Other structures

Partnerships and limited liability partnerships (LLPs) were briefly touched upon as alternative options, particularly where a business is run jointly.

The session concluded with a strong emphasis on personalised tax planning. Attendees were encouraged to speak to their accountant about their individual circumstances, especially considering upcoming reporting changes and the evolving tax landscape.

We hope this helps to explain the different company structures and what you need to consider when you are setting up your business or considering changing your company structure. If you would like any further advice, please do contact us directly by calling  Linda on 0115 928 32288 or by email info@coalesco.co.uk