May 25, 2016

Sole Trader V Limited Company

Sole Trader V Limited Company

When you are setting up and establishing your own company it can be challenging to know whether you should register as a sole trader or limited company. Here at the Kelvin Partnership, we want to make that decision easier for you by outlining the key differences between a sole trader and a limited company.


Liability is a huge issue in business and is something you really need to consider when setting up your company, particularly if you are registered as a sole trader. As a sole trader, there is very little separation between you and the business – all of the company debt becomes your debt, and all your assets are the company’s assets. But what does this mean for you? Well, any debts owed by the company are owed by you and are your responsibility, furthermore, if the company’s assets were to be repossessed at any point, these assets include things such as your home as there is no separation between you and the company. You hold all the legal and financial responsibility.

Limited companies do not have such a high level of risk in terms of liability as the company becomes a separate legal entity to its directors – as the company is ‘limited by shares’, as a shareholder, in the company, your liability is limited.  This means that the company debt and assets are separate to any of your own personal debts and assets, meaning that if the company became liable for anything, your assets would have limited liability.


In a limited company taxes are deducted from the director’s salaries via PAYE in regular installments to HMRC. It is also required that all directors complete a tax return for any pay or benefits received -this has to take place whether tax is owed or not. Generally, limited companies would appoint an accountant to ensure that all taxes are taken care of and to make sure company accounts are prepared properly at the end of the financial year. Often choosing the right accountant can be challenging as you need a reliable, trustworthy and professional accountant, and here at The Kelvin Partnership we can provide just that with our wide range of accounting services.

Sole traders simply pay tax on their business profits once all expenses have been deducted. This is done via the self-assessment tax return system and must be done before the 31st of January after the end of the tax year.

When Should I Make the Switch?

If you decide that becoming a limited company is more beneficial to you and you want to reduce your personal liability, then now is the perfect time to make the switch and incorporate your company.

Here at the Kelvin Partnership, we want to make this transition as easy as possible for you and we can assist you through all the aspects of becoming a limited company -from the appointment of directors to the issue of subscriber shares. Once your new limited company is up and running, we can also help with all your accounting needs to ensure that you meet all the legal requirements regarding tax etc.

Get in touch today!

Thanks to for the photo.