Sole trader v partnership v limited company – which business setup is right for me?

Help for deciding the best set up for your new business

As a firm of Accountants specialising in startup businesses, we get asked this question all the time.  Unfortunately, it’s never a blanket type answer that you can quickly assess but in this guide, we will talk you through the different things to consider so you can be fully informed about which route is right for you.

Sole Trader (Self-employed)

This is where you effectively trade as yourself (although you may use a trading as name) and declare any profits you make on your self-assessment tax return.  Most people start out this way as it’s very easy to set up and close down of things don’t work out.  In a new business that wants to reinvest profits in future growth, it may not be the best option as you are taxed on your profits on paper not what you take for yourself.

If you think your profits are likely to exceed  £30k or you already have other earned income such as employment then you should consider a limited company as there may be tax savings.


This is basically self-employment for two or more people in business together.  The principles work exactly the same except profits are split between the partners in the ratios agreed I.e. 50-50 or 60-40.

It offers a degree of flexibility in that income can be split fairly when partners have different levels of income needed to pay them for their different levels of work.

Limited company

This is one of the most popular methods of operating as a business.  There are some good tax savings when your profits are above £30k per year per director.

Although limited liability is a factor it’s now very minimal as many lenders ask for a personal guarantee from the directors.

It can be a little more difficult to set up and closing it down takes more time than the other options.  If you have other income or want to reinvest profits back into future growth then this may be a good option as you can pay tax at a lower rate.

Overall this isn’t a question that can easily be answered without a consultation with an accountant.  You need to think about your short, medium and longer-term goals and targets as these may affect what is the best option for your new business and you.

Any good Accountants should be able to take you easily through the key areas to consider and offer an opinion on what they believe to be the best option for you given your personal circumstances.

We are specialist Accountants for those who operate as a limited company but we put the right advice as number one!

If you’d like a free no-obligation chat about the right set up for you then we can definitely do that.  If a sole trader is the right option for you we will tell you so but we will also likely advise you that we aren’t then the right Accountants for you either.  We know who we work best with and that is limited companies who are a service-based business particularly in the technology, creative or construction industries.

If you’d like a chat about your right setup then book a discovery call now