What's the difference between being a sole trader and a limited company?
I'm weighing up whether to stay a sole trader or incorporate as my freelance business grows.
Asked by Anonymous on 9 January 2026
1 Answer
As a sole trader you and the business are legally the same, you pay Income Tax and National Insurance on all profits, and you're personally liable for business debts. A limited company is a separate legal entity that pays Corporation Tax on its profits, offers limited liability protection, and can be more tax-efficient once profits rise, but comes with extra admin: Companies House filings, statutory accounts, and payroll if you take a salary. There's no single right answer, it depends on your profit level, risk exposure, and admin appetite, so it's worth discussing with an accountant before you switch.