If you’re starting a side hustle, freelancing, or going self-employed in the UK, one of the first big decisions is choosing your business structure:
➡️ Sole trader or
➡️ Limited company

Both are legit ways to run your business — but the way they work (and how much tax you pay) is very different.

This guide will help you understand the difference between sole trader and limited company so you can choose what’s right for your situation.

What Is a Sole Trader?

A self-employed sole trader is someone who runs their business as an individual.

You and the business are legally the same, and you’re personally responsible for any profits, losses, and debts.

Key Features

• Simple to register (just sign up for Self Assessment with HMRC)

• You keep all the profits after tax

• You pay Income Tax and National Insurance

• You’re personally liable for debts and contracts

Pros of Being a Sole Trader

✅ Easy and quick to set up
✅ Minimal admin and low costs
✅ Full control of business decisions
✅ Ideal for side hustles or starting small

Cons

⚠️ No legal separation between you and the business
⚠️ Fewer tax planning options
⚠️ May seem less professional to some clients

What Is a Limited Company?

Setting up a limited company in the UK means creating a legal entity that’s separate from you.

The company has its own legal responsibilities, files its own taxes, and can own assets or enter contracts.

Key Features

• You become a director and shareholder

• The company pays Corporation Tax on profits

• You can pay yourself through salary, dividends, or both

• Personal liability is limited in most cases

Pros of a Limited Company

✅ Personal assets are protected (limited liability)
✅ Often more tax efficient at higher profit levels
✅ Can enhance credibility with clients and suppliers
✅ Easier to raise funding or bring in shareholders

Cons

⚠️ More admin (file annual accounts with Companies House)
⚠️ Stricter legal duties as a company director
⚠️ Might need professional help with accounting

Tax Comparison: Sole Trader vs Limited Company UK

Understanding the tax advantages of a limited company can help you decide which setup makes more sense as your business grows.

Which Business Structure Is Right for You?

Here’s a quick guide to help you decide.

🧪 Stick with sole trader if:

• You’re testing an idea or just starting out

• You earn under ~£30–40k profit a year

• You want a low-maintenance setup

📈 Consider a limited company if:

• You expect higher profits (over £40k)

• You want to protect personal assets

• You’re reinvesting profits or growing fast

• You want to access more tax-saving options

Can You Switch Later?

Yes! Many people start as sole traders and switch to a limited company when the time’s right.

You’re not locked in forever — just choose what makes sense for now, then adapt as you grow.

Final Word

Whether you register as a sole trader or go all-in with a limited company, the most important thing is getting started.

Your business structure can evolve — and Hustle Mate is here to support you either way.