Limited Company Handbook
Running a limited company comes with more obligations than being a sole trader — but also more opportunities. This handbook covers everything you need to know to run your company correctly, from director responsibilities and corporation tax to paying yourself and filing your annual accounts.
The decision between a limited company and sole trader structure is one of the most important you'll make as a business owner. Both have genuine advantages — the right choice depends on your specific situation.
The main advantages of a limited company are: limited personal liability (your personal assets are protected if the company incurs debts), potential tax efficiency at higher profit levels, and a more professional image with some clients.
The main advantages of sole trader status are: simplicity (less paperwork, no Companies House filings), lower costs (no accountancy fees for annual accounts), and privacy (your financial information isn't publicly available).
The tax efficiency argument for limited companies is often overstated. At profit levels below £30,000–£40,000, the tax savings rarely outweigh the additional costs and admin. At higher profit levels, the combination of a low salary and dividends can be significantly more tax-efficient than sole trader income tax.
Many business owners start as sole traders and incorporate when it makes financial sense — typically when profits are consistently above £40,000 and the tax savings justify the additional complexity.
Good to know
- Get advice from an accountant before incorporating — they can model the tax implications for your specific situation
- Consider the full cost of incorporation: accountancy fees, Companies House fees, and your own time
- Some clients and contracts require a limited company — check before you decide
- Incorporation is not irreversible — but it's easier to go from sole trader to limited company than the other way
Watch out for
- Incorporating too early — the tax savings may not justify the costs at lower profit levels
- Assuming a limited company is always more professional — many successful businesses operate as sole traders
- Not understanding the additional obligations before you incorporate
- Making the decision based on what others in your industry do rather than your own numbers
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