When starting or growing a small business, one of the most important decisions is how to structure it legally. Should you register as a sole trader or set up a limited company (Ltd)?

There are other structures such as partnerships, Limted Lliability Partnerships (LLP) and community groups which are not covered by this post.

This guide explains the key differences between sole traders and limited companies, helping you decide what suits your business goals, risk level, and future plans.

At Moore Accountancy, we support Greater Manchester micro businesses, freelancers, and landlords — and we understand that every decision matters when it comes to tax and compliance.

 

What Is a Sole Trader?

A sole trader is the simplest business structure in the UK. You operate the business as an individual and keep all profits after tax — but you’re personally liable for any debts.

Key Features:

• Quick and easy to register with HMRC
• You keep full control over decisions
• Unlimited liability — your personal assets could be at risk
• Income Tax and National Insurance are paid via Self Assessment

This structure suits many start-ups, tradespeople, and self-employed professionals.

 

What Is a Limited Company (Ltd)?

A limited company is a separate legal entity from its owners (shareholders). This means the business is responsible for its own finances, and your personal assets are usually protected.

Key Features:

• Separate legal identity
• Limited liability — reduces personal financial risk
• Pays Corporation Tax on profits
• Often seen as more professional and credible

Limited companies are ideal for those looking to scale, take on staff, or benefit from tax efficiencies at higher profit levels.

 

Sole Trader vs Limited Company: A Side-by-Side Comparison

Feature	Sole Trader	Limited Company
Legal Identity	Business and individual are the same	Separate legal entity
Liability	Unlimited (personal assets at risk)	Limited (personal assets protected)
Tax	Income Tax via Self Assessment	Corporation Tax
Admin Requirements	Low	Higher – Companies House filing needed
Privacy	Personal financials stay private	Company details are public
Funding Options	Limited	Easier to attract investment
Business Perception	Less formal	Often seen as more credible

 

Pros and Cons

✅ Advantages of Sole Trader Status

• Simple setup process
• Fewer filing responsibilities
• Full control of the business
• Lower accountancy costs

❌ Disadvantages of Being a Sole Trader

• You’re personally responsible for all debts
• Potentially less tax-efficient at higher income levels
• May be seen as less professional by lenders or clients
• May come under Making Tax Digital (MTD) rules from April 2026 where quarterly filing is required

 

✅ Advantages of a Limited Company

• Limited liability protection
• Potentially more tax-efficient if you do not need all the profits earned in the business
• Improved access to funding and grants
• Greater credibility

❌ Disadvantages of a Limited Company

• More admin (e.g. annual accounts, confirmation statements)
• Directors have legal responsibilities
• Company info is public
• Double taxation as the company pays corporation tax, but directors pay dividend tax on monies taken from the company

 

Which Structure Is Right for You?

There’s no one-size-fits-all answer. Your choice depends on:

• How much personal risk you’re comfortable with
• How you plan to grow
• Your profit level and tax position
• Whether you’ll bring in partners, staff or investors

At Moore Accountancy, we can walk you through the pros and cons of each — with no jargon.

 

Let’s Chat

We’ve helped hundreds of small business owners in Altrincham, Manchester, and across Greater Manchester decide on the right business structure — and we’d be happy to help you too.

Book your free 30-minute consultation today:

📞 0161 470 7878
📧 info@mooreaccountancy.co.uk
📍 1 Northway, Altrincham, WA14 1NN
🌐 www.mooreaccountancy.co.uk