Sole trader or limited company: which suits your business?

Sole trader or limited company: the key difference

GOV.UK puts it simply: "The business structure you choose can affect the way you pay tax and your legal responsibilities." The big split in sole trader or limited company is about who the business legally is.

Neither choice is right for everyone. Many people start as a sole trader and form a company later. Picking sole trader or limited company is about matching the structure to your risks, plans and appetite for admin.

Running a business as a sole trader

If you're weighing up sole trader or limited company, start with the simpler one. GOV.UK calls it the easiest business type to set up and keep records for. You can trade under your own name or a trading name. Here's what's involved:

• Registering with HMRC: you can start trading without registering, but you must register for Self Assessment if you earn more than £1,000 in a tax year (6 April to 5 April). GOV.UK sets a 5 October deadline for telling HMRC, and registering late can lead to a fine.
• Tax returns: you then send a Self Assessment return each year, and HMRC works out the Income Tax and National Insurance on your profits.
• Liability: GOV.UK says owners "are personally responsible for all of the debts of the business". This is called unlimited liability, so insurance matters more.

There's no HMRC fee to register, and nothing goes on a public register. GOV.UK's become a sole trader guide walks you through each step.

Running a limited company

The other side of the sole trader or limited company choice takes more setting up. GOV.UK's register your company guidance and the steps before it list what you need:

1. 1

   People

   At least one director and at least one shareholder, who can be the same person. You also confirm people with significant control, such as anyone with more than 25% of the shares or votes.

2. 2

   Name, address and activity

   A company name, a registered office address and a SIC code for what the company does. The registered office address is public, so think twice about using your home.

3. 3

   Documents and identity

   Articles of association that set out how the company is run. Directors may need to verify their identity with GOV.UK One Login to get a personal code.

4. 4

   Register and pay

   Registering online costs £100, paid by debit or credit card, and the company is usually registered within 24 hours. You can also register by post, through software or through an agent.

The Companies House fees page (updated 25 September 2026) lists incorporation at £100 online or through software and £124 on paper. Fees can change, so check that page before you register. Cost alone rarely settles sole trader or limited company, but it's worth knowing.

After registration, the duties keep going. GOV.UK says directors must keep company records, prepare annual accounts, file the accounts and the Company Tax Return, and pay Corporation Tax. It must also file a confirmation statement once a year, which costs £50 online or £110 by post.

Taking money out works differently. This is one of the biggest day-to-day gaps between sole trader or limited company set-ups. As a sole trader, the profit is yours after tax. In a company, money comes out in set ways. Salaries need the company registered as an employer. Dividends can only come from available profits and need paperwork. Taking out more than you put in creates a directors' loan, with its own rules. Plan how you mix these with an accountant.

Sole trader or limited company: side by side

In short, sole trader or limited company is a trade-off: simplicity on one side, legal separation with more rules on the other.

What your structure means for your bank account

Choosing sole trader or limited company decides which account you open and what the provider asks for. A limited company is its own legal person, so its money goes into an account in the company's name. Providers then add their own rules.

• Documents: for a company, providers usually check Companies House and ask about directors and owners. Monzo, for example, says the company must be active on Companies House.
• Who can apply: some providers limit the company set-ups they accept. Starling says the applicant must be both a director and a person with significant control, and Mettle says a company can't have more than two people with significant control.
• Changing structure later: switching from sole trader to limited company usually means a new business account in the company's name. Starling, for instance, says converting from a sole trader to a limited company requires a new account.
• Sole traders: GOV.UK doesn't say you must have a separate business account as a sole trader, though your provider's terms may limit business use of a personal account. Our guide on whether sole traders need a business bank account covers this.

If you go down the company route, some providers bundle company formation with an account. Tide, our featured partner, offers company registration with a Tide account for £14.99; check what's included first. Whether you pick sole trader or limited company, you can compare business bank accounts that accept your structure.

Tide is our featured partner. We may earn commission from referrals. Disclosure

Who each structure tends to suit

These are common situations people describe when choosing sole trader or limited company. They are not recommendations.

When to speak to an accountant

Comparing sole trader or limited company on tax is where you need a professional. Speak to an accountant or tax adviser if:

• your profits are growing and you want to know whether a company would change your tax bill
• you're thinking about taking money out as salary, dividends or a mix
• you might need to register for VAT
• you're moving an existing sole trader business into a new company
• you simply want a second opinion on sole trader or limited company for your plans

GOV.UK has guidance on how to choose a tax agent, including checking whether they belong to a professional body.

The short version

As a sole trader, setting up is simple and cheap, and you keep the profits after tax, but you're personally liable for debts. A limited company costs £100 to register online, adds yearly filings and public records, and limits your liability to what you've invested. Your answer to sole trader or limited company shapes your banking too, so decide on the structure first.

Sole trader or limited company: FAQs

Sources

• GOV.UK: set up a business
• GOV.UK: become a sole trader and register as a sole trader
• GOV.UK: set up a limited company and company address
• Companies House fees (updated 25 September 2026)
• GOV.UK: running a limited company, including taking money out and the confirmation statement
• Monzo, Starling and Mettle's own eligibility pages
• All sources checked 25 October 2026.