Waking up in the morning and being your own boss sometimes seems almost too good to be true, doesn’t it? Nobody to answer to, organising your day at your own pace, working on projects as and when you see fit, not having to deal with office politics... there are many perks to living the sole trader dream. Here are a few of the benefits and limitations you may want to consider.


You’re in complete control of your working life. Sunny outside and already hit your deadline? Slap the suncream on. Trade quietened down and you feel like knocking off early? Do it. The freedom and work / life balance you get from being self-employed doesn’t compare to the rigid 9-5 grind of employee life. You’re a one man/woman band when you’re a sole trader. This means any profits you make, you get to keep, minus Income Tax and National Insurance Contributions, which you pay when you complete your Self Assessment.

You’ll also be the sole decision maker, meaning any business that comes along, it’s your choice whether to take it or not. No discussing with employees or having to wait for a manager’s sign off - you’re very much in charge. You have privacy when it comes to your finances. You’re not under any obligation to share your profits or losses with anyone - you’re protected by HMRC’s taxpayer confidentiality rules. 


Whilst it may feel incredible to know that any profits you make you can pocket, be aware that you are also liable for any losses. Your business finances aren’t separate to your personal finances. Get yourself into debt and your assets could be at risk - whether that’s your home, car or personal belongings. And, worst case scenario, you get sick and can’t work for a period of time - you don’t have any employees to send in your place and therefore won’t be earning. 

When you’ve got a years worth of invoices and receipts, keeping them organised can be time consuming and frustrating. You’ll have a lot more paperwork to keep track of compared to an employee. When freelancing or working for a client, your health and safety may be covered under their insurance, however your employment rights are pretty slim to none: no statutory paid holiday, no statutory length of rest breaks and no statutory sick pay.


Limited Company: The other option

For those who want more legal protection, tax-efficiency, or just want to establish their business “properly”, a limited company setup is a sensible and actually-not-that-complicated option.


A more formal, legal structure for running a business. You will need to register your business with Companies House - an arm of the government that registers information about new and dissolved limited companies - before you start trading. Do this online and you can have your business ready to trade within 24 hours - and often on the very same day. 

A limited company is run by directors and owned by shareholders. If you’re setting up your limited company solo, you’ll become the only Director. This means you’re legally responsible for managing the business. It’s also likely that you’ll be the main shareholder as well - sounds fancy doesn’t it? 

You’ll be taxed differently if you form a limited company, potentially increasing your take-home pay. This is due to different tax legislation that applies for companies as opposed to the self-employed. If you trade as a limited company and your profits are under £300,000 you’ll pay Corporation Tax at 20%.

To put this into perspective, If you’re self-employed, you’ll pay 40% Income Tax the minute your earnings top £42,385. If you’re a limited company your tax rate will stay at the  Corporation Tax rate of 20%. You’ll also be able to claim back any relevant expenses that are “wholly, exclusively and necessarily” from business purposes (you can find out how your take home pay would change with this calculator).

Have big plans for your business? Need to borrow some hefty capital? A limited company can establish its own credit rating, therefore making it look more appealing to lenders and increasing your borrowing ability. Going limited could also expand your client pool. Bigger companies often prefer to trade ‘business to business’, as opposed to business to self-employed. One of the main benefits of becoming a limited company is that your personal and business finances are separate. This is called limited liability. ‘Excellent’, I hear you cry, ‘I can spend as much as I’d like to make my business work without worrying about my house getting repossessed!’ Well, not quite.


Spending money is great. Spending too much and getting yourself into unrepayable debt is not so great. If this happens your business could potentially be declared insolvent and go into liquidation. As a worst case scenario, if you fail your responsibilities as a Director, you may be prosecuted, heavily fined and banned from setting up a further business as a limited company.

The accounts and other details of your limited company will also be public on the Companies House website. Whilst it might be appealing for the successful amongst you to enjoy the thought of a competitor seeing your total revenue and profit, would you really want them to have a gander when the chips are down and times are tough? As a Director, you’ll also be responsible for a whole lot of important, legal paperwork. But, luckily, your accountant can help with this side of things.

As with any business decision, there are pros and cons and for many freelancers the sole trader or limited company question is one of personal choice. Follow your soul - and do what feels right for you.