What is the difference between Sole Trader and Limited Company?

Sole trader vs limited company difference

Learn more about the difference between the two self-employed register statuses.

When you make the decision to go self-employed, you are faced with a range of ways in which you can register your business. In the UK, two of the most popular choices to register as self-employed are Sole Trader and Limited Company. However, there are vast differences between the two, and the benefits of why you may choose one over the other.

At the time of writing the blog post, I’ve been freelancing as a writer for three years and registered as a sole trader. However, what inspired me to write this blog post is that I have recently embarked on a new business venture. I recently launched a natural hair care brand, Laid Locs, and registered it as a Limited Company. Through doing this and joining the Princes Trust business course, I discovered significant differences between Sole Trader and Limited Company. Read on to discover some differences between these two self-employed statuses.

What is a Sole Trader?

A Sole Trader is when a self-employed person is essentially viewed as their business. There is no separate entity between you and your business. Because of the way that freelancers work, often solopreneurs, this is a popular option for freelancers.

Registering as a Sole Trader also means limited paperwork compared to LTD registered companies, which I’ll explain in the next point. The Government website also states that you do not have to start filing taxes until you earn over £10,000 per year as a sole trader.

What is a Limited (LTD) company?

A Limited Company is seen as a separate entity from its business owner. Because of this, you will have to fill out separate forms to send to Companies House, which you would not have to do as a sole trader.

However, registering your business as a Limited Company can come with extra protection compared to registering as a sole trader, as it means if someone wants to sue your business, it will not affect you directly as a person.

Instead, it will go directly to your company. This, however, is not the case if you register as a sole trader.

If you are at the start of your freelancer journey and looking for more guidance on how to build your freelance brand, check out my Beginner Freelancer Ecourse.

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