Limited company vs sole trader: the Lancashire guide

Every week someone in Lancashire asks us whether they should stay a sole trader or form a limited company. The honest answer is a spreadsheet, not a slogan. The company saves tax at some profit levels and wastes money at others, because Corporation Tax, dividend tax, accountancy fees and the admin of a second legal person all show up together.

What actually changes

As a sole trader you and the business are the same person. Profit is yours, tax is Self Assessment, and if something goes wrong the debt can follow you home. A limited company is a separate person. It owns the contracts, it pays Corporation Tax, and you take money out as salary or dividends. That separation is the point (limited liability) and also the paperwork.

The tax is not a straight win

At modest profit, a sole trader is often cheaper: one return, no confirmation statement, no Corporation Tax computation. As profit rises, the combination of a small salary and dividends can beat income tax on the whole profit, until you remember the extra accountancy, the extra filing, and that money left in the company is not yet yours. We model both with your numbers, not a blog-post average.

When we usually incorporate

Clients who want limited liability, who sell to larger organisations that prefer a company on the invoice, or who plan to keep profit in the business for a van, a deposit or a hire. Clients who want a ‘more professional’ look and earn £22k rarely thank us for a company six months later.

Talk to us before Companies House

Forming the company is the easy afternoon. Getting the share structure, the bank and the first 90 days right is the work. If you are on the fence, bring last year’s figures or a honest forecast to a free consultation. We will tell you if you should wait.