Sole trader or
limited company?

What is the actual difference?

As a sole trader, you and the business are the same legal person. The money is yours, the contracts are yours, and so are the debts. You register for Self Assessment and pay income tax and National Insurance on your profits.

A limited company is a separate legal person that you own shares in and usually direct. It owns its money and signs its own contracts. It pays corporation tax on its profits, and you pay personal tax on whatever you take out as salary or dividends. That separation is the whole point, and it is also the source of every extra obligation that follows.

How do the two compare side by side?

When does a limited company save tax?

The saving comes from splitting how you extract profit. A company pays corporation tax on its profits; you then take a modest salary and the rest as dividends, which carry no National Insurance and are taxed at lower rates than the equivalent salary. At higher profits that combination usually beats income tax and National Insurance on the whole lot.

It stops being simple quickly. Dividend rates and the dividend allowance have both moved in recent years, corporation tax has a small profits rate with a marginal band above it, and the extra accountancy fees eat into the difference. There is no honest single number at which incorporating starts to pay.

The practical answer: once profits are consistently well above what you need to live on, get a projection from an accountant using your actual figures. It is an hour that frequently pays for itself, in either direction.

When is a limited company right for reasons other than tax?

• —You are taking on work with real financial risk, and the liability separation matters more than the paperwork.
• —Clients or agencies you want to work with will only contract with a limited company.
• —You intend to bring in a partner or an investor, or eventually sell the business.
• —You need to protect a trading name, which incorporation does more firmly than trading as yourself.
• —You are building something you want to outlive your own involvement in it.

When should you stay a sole trader?

• —Profits are modest and the tax saving would not cover the extra accountancy fees.
• —You value the simplicity — one return, no filing calendar, no public record.
• —The work carries little liability and your customers do not care about structure.
• —You are still finding out whether the business works at all. Incorporating later is straightforward; unwinding a company you did not need is less so.

Does the software change either way?

The bookkeeping discipline is identical. What changes is what sits on top: a company needs statutory accounts and a corporation tax return, and it needs a clean line between company money and your money — because with a company, that line is a legal fact rather than a matter of tidiness.

Bizzle keeps a proper double-entry ledger either way, so incorporating does not mean starting the books again. Your accountant keeps their free login through the change, which is exactly when you most want them looking at the same figures you are.