Sole Trader vs Limited Company in 2025 –What’s Best for You

When you’re starting a new business (or growing fast), one of the first big decisions is
whether to operate as a sole trader or set up a limited company. Each option has tax,
legal, and operational implications.
Here’s a 2025 comparison to help you decide:
👤 Sole Trader – Simpler Setup
✅ Pros:
● Easy to set up and run
● Fewer reporting requirements
● You keep all profits
⚠️ Cons:
● You’re personally liable for business debts
● Taxed as income (up to 45%)
● Less credibility with banks and clients
🏢 Limited Company – More Professional Structure
✅ Pros:
● Limited liability protection
● Potentially more tax efficient (19–25% Corporation Tax)
● Easier to raise funding or work with larger clients
⚠️ Cons:
● More admin and compliance (Companies House, accounts filing)
● Dividends are taxed separately
● Must run a payroll if you’re a director receiving salary
📊 Tax Efficiency Example (2025)
Business
Type
Profit Estimated Tax Take-Home
Sole Trader £50,000 ~£9,000 ~£41,000
Limited Co. £50,000 ~£6,000 ~£44,000
Assumes salary/dividend mix and standard allowances.
🏁 Verdict: If your profits are growing, or you want more protection and credibility, a limited
company is often the better long-term choice.
We can help you register, set up your payroll, and manage your accounts—stress-free from
day one.