If you’re starting a new business in the UK, one of the first big decisions you’ll make is choosing your legal structure. This choice affects your tax, liability, admin responsibilities, and even future growth options. Two of the most common options are operating as a sole trader or forming a limited company — but which is right for your business?

Here’s a clear guide to help you make an informed decision.

Sole Trader: Simple, Flexible, and Quick to Start

Being a sole trader is the easiest way to begin trading. You run the business as an individual — and keep all profits after tax — without the need to register a separate corporate entity.

Pros

  • Quick and inexpensive to set up.

  • Fewer filing and reporting requirements.

  • Full control over business decisions.

Cons

  • You are personally liable for all business debts.

  • As profits grow, tax rates may become less favourable.

  • It can be harder to raise finance or attract investors.

For freelancers, consultants, and many small service businesses, this structure often works very well — especially in the early stages.

Limited Company: Protection and Potential Tax Benefits

A limited company is a separate legal entity. Your personal liability for business debts is usually limited to what you’ve invested — meaning your personal assets are more protected.

Pros

  • Limited liability protects your personal finances.

  • Often more tax efficient as profits rise.

  • Adds credibility with clients and lenders.

Cons

  • More paperwork, including annual accounts and statutory filings.

  • Directors must adhere to legal duties and company law.

Because limited companies have clearer structures and fiscal advantages as they scale, many businesses choose this route when they plan to grow, hire staff, or seek investment.

So, What Should You Choose?

There’s no one-size-fits-all answer, because every business is different. Some entrepreneurs start as sole traders to keep things simple, then switch to a limited company when their business outgrows that model. Others begin as a limited company right away, prioritising growth and protection from day one.

Whatever stage you’re at, the right structure can save you tax, reduce risks, and position your business for success.

Need Personalised Advice?

At Coombs Chartered Accountants, we help business owners make the right choice based on their long-term goals, expected profits, and risk profile. If you’re unsure which structure suits you best, we’d love to talk it through with you.

Speak to our team — we’re here to guide you every step of the way.