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Sole Traders, Time to Switch? The Benefits of Limited Companies

By Business Desk

Tuesday, April 10, 2018.

Do you report yourself as self-employed to the tax authorities? If so, you could be missing out on some of the many benefits on offer by running your business as a limited company rather than a sole trader. Today, we’re going to take a look at why you might gain plenty of advantages by making a switch - let’s take a closer look.

Tax benefits

First of all, there could be tax benefits on offer if you switch from sole trader to limited company. As a limited company, you will pay Corporation Tax - currently at 19% of your profits. However, as a director of your company you can choose to pay yourself a small salary (below the tax threshold) and draw the majority of your income through dividends. This means you can end up paying minimal National Insurance Contributions (NICs), whereas when you’re a sole trader, your entire income will be eligible for NIC rules.


When you are a sole trader, you and your business are treated as a single entity for tax and finances. So, if your business gets into financial trouble, you will be liable for any debts on a personal level. When you set up a limited company, however, your business is treated as a separate entity than yourself. It’s seen as a pure business operation, and you won’t be personally liable for any losses.


As a sole trader, the chances are that you will experience rejection from potential clients, purely because they prefer working with businesses that appear more professional. WIth a limited company, you will find that these same businesses will give you more of a chance, meaning a wider client base and the opportunity to work with higher quality clients.


Getting funding or borrowing from banks is tricky enough for any business owner these days. But as a sole trader, you are more hamstrung than most. The reality is that limited companies have much more chance of securing funding or borrowing business loans than a typical self-employed person. And if you are looking to grow your business, it’s funding that is likely to be the most important part of the process.

Intellectual Property

You have protection from the law when you set up a limited company. The business name you provide is yours and no one else can use it - or anything that could be deemed as too similar. However, when you are self-employed, things are a little different. You might be trading under a business name, but if someone else starts a limited company with the same name, there is nothing you can do about it. In fact, you could end up being forced to change your name by the same people that stole yours!


As a limited company, you have the option of issuing shares, which is not available to you as a sole trader. It means you can sell stakes in your company or transfer ownership, giving you a vital tool in raising money.

So, is being a sole trader working out well for you? There is nothing wrong with it, of course, but at some point down the line, you might benefit hugely by becoming a limited company!

Sole Traders, Time to Switch? The Benefits of Limited Companies

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