Should I set up as a sole trader or a single person company?

  • 22 Aug 2019

Is it best to work as a sole trader or set up a single person company?  The decision comes down to the type of business and clients you have, how much profit you make and your attitude to risk.

First off, you should probably only consider becoming a company if you make a substantial profit - otherwise the accountancy fees, compliance and filing obligations might outweigh the benefits.

Protect yourself

What would happen to you and your assets if something went wrong? A limited company structure protects your personal assets, but if you’re a sole trader, everything you own is liable.


Make sure you send customers and suppliers a watertight contract - consider having a lawyer look over the document. Many template contracts can be found online.

Claim your expenses

Both sole traders and companies can claim expenses. They range from using your own home as an office, mileage on your car, stationary and office equipment to the annual staff party. HMRC hosts a useful seminar on expenses here.

Change your mindset

One of the biggest challenges when setting up a company is learning how you can take money out of the business. Start thinking about your outgoings and when you need to pay them. This includes paying yourself a salary, and planning how else you can take money out of the business.

Make use of tax-free allowances

One way of taking out tax-free money is the so-called “alphabet share structure”, where you can transfer shares worth £2,000 to your family members, tax free, if they are involved in the business. Anyone receiving shares should be involved and working in the business from day one, to satisfy HMRC, otherwise you might still have to pay tax on that money.


Another good way to manage extra funds is by making use of your tax-free pension allowance, which is capped at £40,000 per year. 

Know your deadlines

If you have a company, you will have personal tax deadlines as well as the company year-end and filing dates. (After the first tax year, you pay in instalments every six months in January and July.)

And don’t forget about corporation tax. For single person companies, it often isn’t payable until nine months after the end of the tax year.

If you charge VAT, make sure you are registered. It only applies if your business turns over more than £85,000 a year.


At Starling, it only takes a few minutes to apply for a mobile business account, and our Goals feature means you can save money for different objectives, like income tax and VAT, without opening more accounts.

For more information on different structures, the Federation of Small Businesses provides a good guide here.

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