Deciding on your freelance business structure

Advice

We spoke to Jason Robertson from Accountr, to help outline the pros and cons of choosing your freelance structure. The main structural options for setting up as a freelancer are a ’sole trader’ or a ‘limited company’, this applies for whether you are freelancing full time, or doing it on the side of an employed role or study; you’re going to want to make sure the legal structure you choose is right for you.
A sole trader is the simplest and most popular structure. You are effectively the business.
A Limited company is a legal entity which is separate to its owners (shareholders) and managers (directors). This is still the case even if only one person is the sole director and shareholder.

Pros of a Sole Trader Set Up

– Easy and quick to set up
– Relatively little paperwork (one self-assessment return per year – although this will be changing in 2024)
– Greater privacy than Incorporated businesses, whose details are held on a national register

Con’s of a Sole Trader set up:

– Unlimited liability – if the business gets into debt, you are personally liable for the debt
– Can lose personal assets if it all goes wrong
– Raising finance can be tricky – bank prefer to lend to incorporated businesses
– Higher tax rates. As your business grows it tends to make more sense to incorporate a limited company.

Pro’s of a Limited company set up:

– Directors and shareholders have Limited liability
– Personal assets aren’t at risk – only what you’ve invested into the company
– Once your Limited company name is registered, no-one else can use it

Con’s of a Limited company set up:

– More responsibility and legal filing requirements
– Can be more costly to run due to increased filings
– Directors information and company accounts can be found online at Companies House