Self-Employed vs Limited Company – Which Is Right for You

If you're starting a business or side hustle in the UK, one of the biggest decisions you’ll face is whether to operate as self-employed or set up a limited company. Both options have their pros and cons, especially when it comes to tax, admin, liability, and overall profitability.

In this guide, we summarise the key differences to help you make the right choice and explain how MW Tax can support you whichever path you choose.

1. Tax Efficiency

Self-Employed (Sole Trader)

• As a self-employed trader, you pay Income Tax on all profits above the personal allowance (£12,570 in 2024/25)

• Pay Class 2 and Class 4 National Insurance

• There’s no ability to split income with a spouse or defer income for tax planning

  
  

Limited Company (LTD)

• Limited Company’s pay Corporation Tax on profits (currently 19%–25%, depending on profit level)

• You can pay yourself a salary and dividends (dividends have lower tax rates)

• Greater scope for tax planning and splitting income with shareholders

  
  

💡 Verdict: Limited companies often result in lower overall tax bills once your profits go beyond £30,000–£40,000, but setup/admin costs are higher.

2. Admin & Paperwork

Self-Employed:

• Register with HMRC for Self-Assessment

• File an annual tax return

• Keep basic business records

  
  

Limited Company:

• Register with Companies House

• File annual accounts and confirmation statements

• File Corporation Tax returns and PAYE (if you're a director taking a salary)

• More compliance and paperwork involved

  
  

💡 Verdict: Self-employment is simpler and more flexible. Limited companies involve more admin but offer legal and financial advantages.

3. Liability & Legal Protection

Self-Employed:

• You are personally liable for any business debts

• No legal separation between you and the business

  
  

Limited Company:

• The company is a separate legal entity

• Limited liability means your personal assets are protected (except in cases of fraud or guarantees)

  
  

💡 Verdict: A limited company offers more protection, especially for higher-risk or larger-scale businesses.

4. Professional Image & Credibility

• Limited companies often appear more credible to clients, lenders, and suppliers

• Some larger companies or agencies only work with limited companies

• “Ltd” status can increase trust and opportunities

  
  

💡 Verdict: A limited company may help attract bigger or more corporate clients.

5. Access to Finance

• Limited companies may find it easier to access business loans, grants, and investment

• Directors can build a business credit profile separate from their personal one

• Sole traders often rely on personal credit or loans

  
  

6. Profit Retention and Growth

• Sole traders are taxed on all profits, even if left in the business

• Limited companies can retain profits and reinvest without triggering personal tax until taken as dividends

  
  

💡 Verdict: Limited companies offer more options for long-term financial planning and scaling a business.

How MW Tax Can Help You Choose the Right Structure

At MW Tax, we’ve helped hundreds of UK professionals make the switch from sole trader to limited company—or stay self-employed with confidence.

Here’s how we help:

• Personalised tax analysis: We'll crunch the numbers to see which setup saves you the most.

• Company formation support: If you go limited, we’ll register your company and set everything up correctly.

• Ongoing compliance: We handle tax returns, payroll, VAT, and more—so you stay stress-free and compliant.

• Clear advice, no jargon: We’ll explain your options in plain English and give honest guidance based on your income, industry, and goals.

  
  

📞 Let’s Talk About Your Best Move

If you're unsure whether to remain self-employed or form a limited company, we offer a free consultation to explore what’s best for you.

📧 Email: enquiries@mw-tax.com📞 Phone: 01790 378487🌐 Website: www.mw-tax.com