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Sole Trader or Limited Company


Junior Member
Can anybody shed any light?

I've set myself up as a Sole Trader, but I keep being advised to go Ltd - not sure why. It's mainly Recruitment Agencies suggesting that I do, something to do with payroll but I don't really get why they are so bothered? :confused:

Wee Jimmy

Senior Member
Basically if you make yourself Managing Director of a Ltd Company there are loopholes to avoid paying any company debt (should that happen and you cease trading). There a probably many more benefits to doing it this way


Senior Member
I went through this with 2 accountants I know, and after 6 years of trading still classed as Self Employed with 2 freelancers employed.

Pros of LTD

- You can pay yourself via Dividend (Don't pay tax or national Insurance on this as a person but the Company(ltd) pays tax on the money. This means it could effect your contribution for benefits and for pension at later date.
- If you do go under any debts you owe will not come back to you (In our field of design really has little benefit) - Mentioned above

Cons of LTD

- Payment of salary has to be more fixed, you can not just removed money to pay self as and when you feel like it from the Company Bank Account.
- More cost of accountancy & books.
- People can easily get hold of your figures and see your salary.
- Need another Director on Board.

Pros of Self

- Salary is private
- Dont need a separate bank account although VERY advisable to keep accounts clear of money in & out for accounts at end of year.
- Can withdraw money for salary as and when you please.
- Found that through Recession, Companies are more willing to hire a Freelancer as then they know, if paying your costs your overheads are primarily low and aslong as that company is paying salary there is no real reason to go bust compared with Ltd companies that can just almost cease trading and disappear.
- Easy tax forms to fill out, Simple as look at costs to the "company(self employed)" fill this into a box, put how much money was brought in, this give you the turnover & profit, this gets sent to the tax office. They then calculate how much tax you owe, send you a bill and you then pay this at end of each year.


-If you go under and have debts, outstanding invoices then you will still be liable to pay these.

Personally I'm going to stick as self employed for foreseeable future, to many tax benefits for me personally. Will however be going VAT Registered as all my clients are VAT registered and then means can claim VAT back, especially as its going up to 20% in Jan.

If you have any other questions feel free to ask!


Staff member
CSparkes said:
Personally I'm going to stick as self employed for foreseeable future, to many tax benefits for me personally. Will however be going VAT Registered as all my clients are VAT registered and then means can claim VAT back, especially as its going up to 20% in Jan.
This was my logic, I voluntarily went vat registered, all my main clients are vat registered so it makes no difference to them (they can claim it back on my services usually) but I get the added benefit of claiming for any business purchases, seeing as computers and software in our field aren't cheap it can help alot, and will be even more when this damned 20% comes in :)

I've also got a mate who went freelance, originally went limited company but then chose to 'close' it and just be a sole trader as it worked out better to be a sole trader than a ltd company (was a while ago since we talked so can't remember too much about the conversation)
This is one area that I do know something about. Recruitment agencies like you to be a limited company as there is no possibility that HMRC or employment law could class you as their employee. But only do it if it makes sense for you.

There may be tax advantages or disadvantages depending upon your situation so it may be worth speaking to your tax advisor.

There is more admin with a limited company but it's minimal and fairly easy to manage if you're reasonably organised.

I would certainly recommend becoming a limited company if you are going to go into business with someone else, take on staff, or take on a project that has large upfront outlays. Being a limited company does give some protection to you if the business goes under.

But beware, it's not a get out of jail free card. If a company does become insolvent, the liquidator will look at how the director(s) ran the company. You still have to be responsible financially and make sure you can pay your debts, otherwise you can be personally responsible for the company's debts. Also, you may still need to give personal guarantees for any loans the company takes on.

Check with your insurance broker as well. Will it put your premiums up? A limited company that's trading must have public and product liability insurance. Your clients/agency might expect you to have professional indemnity insurance as well. On the other hand, they should pay extra for the priviledge of employing you as a limited company. It's far less risky for them.

Also, are you thinking of getting a mortgage in the near future? I've been told it can be a bit easier if you have a regular income from a limited company than just drawings from a sole tradership.

Finally, what do your clients prefer? In my line of work, I have to be a limited company in order to get work in the financial services sector. It's no big deal and you can set up a company online for about £20.
the reason why they prefer you to go through your own limited company is because of limited liability. If you were self employed but then HMRC deemed you an employee, the agency could have to pay back employers NI contributions whilst you would have to pay tax and NI for the period you were self employed (perhaps could be explained a bit better).


Staff member
Berry said:
Don't need 2 Directors for a Limited company, 1 will do.
when I looked into it before opting for sole trader it said it needed 2 different people to be directors. It might have changed though...


Active Member
It used to be 1 Director and a Company secretary ( which could be the same person)
But since April you now don't need to have a Company Secretary anymore.