When should you go Ltd?

If you’re running your own business, whether that’s personal training, coaching or fitness instruction, at some point you might ask yourself the following question: 

“Should I stay a sole trader or set up a limited company?” 

There’s no one-size-fits-all answer, and it’s imperative to get advice from a regulated financial professional based on your individual circumstances. However, there are clear reasons why many professionals switch at certain stages. Here, we explore some of the considerations to support decision making. 

Sole trader – simple and lean 

Being a sole trader means you run your business as you. There’s no legal separation between you and the business and everything you earn and owe sits with you personally. 

Pros of this set-up: 

• It’s fairly easy to start and manage. You register with HMRC and file a self-assessment tax return each year.   

• It has a relatively low administrative burden. No company accounts to file at Companies House.   

• You keep all profits after tax. There’s no corporate structure to navigate. 

This works very well when you’re starting out, your income is modest, you’re keeping costs simple and your personal risk is low. 

It’s not just simplicity that keeps people as sole traders, it’s familiarity. However, it’s important to understand the limitations. 

There are no legal protections for your personal assets. This means that if a client sues you or the business runs into debt, your personal finances, including your house or savings, could potentially be at risk.   

It’s also important to understand that tax can become heavier as profits grow. All of your profits are taxed as personal income plus National Insurance. 

You may also find that some larger clients, gyms or organisations may prefer working with a formal company. 

These limitations start to matter more as your business gets busier, more profitable and more complex. 

Limited company – what you gain (and what you take on) 

Setting up a limited company means you create a legally separate business entity. You become a director and potentially shareholder, and the company owns the business, not you personally. 

There are several advantages to this: 

Personal liability protection 

Your personal assets are generally shielded from business creditors. This is often the number one reason professionals incorporate.   

Tax-planning flexibility 

A limited company pays corporation tax on its profits, which is often lower than higher-rate personal income tax. Then, you can pay yourself through a mix of a salary and potential dividends, which have a different tax model. For some people, this combination can be more efficient once profits are substantial, rather than modest. 

In addition, limited companies can issue shares. This may be useful if you ever take on partners, can be easier to fund and can make it easier to work with larger clients that prefer Ltd contractors.   

So, should you consider going Ltd? 

It’s not about looking for a fixed number to determine if you should seriously consider changing your business arrangement. Here are some of the reasons sole traders consider making the move: 

• Their profits are growing and advisers may suggest it once they regularly generate profits where the tax benefits start outweighing the extra admin. That doesn’t mean sole trading when you’re generating significant profits is wrong, just that the potential tax differences of a limited company become more apparent as you earn more. It’s worth modelling both scenarios with an accountant. 

• Their personal risk increases because their work involves greater liability, for example they have premises or equipment loans and the liability protection of a limited company could become much more valuable.   

• They want to work with organisations or on certain contracts and partnerships that specify the need to be a limited company. 

• They are planning to grow, sell or pass on the business, so a limited company makes those transitions cleaner and more logical in structure.   

It’s worth being clear about the costs associated with being a limited company, too. 

There is undoubtedly more paperwork, as you must file annual accounts, corporation tax returns and comply with Companies House regulations.  

There are also set obligations that you would have as a director with regards to how the company is run and the information, including accounts and director details, that you must make public.  

People often hire an accountant to help with this transition and ongoing compliance. This additional cost is often worth the clarity and reassurance of having expert support. 

Many professionals start as a sole trader, then incorporate when they hit a revenue threshold, they secure bigger contracts or when they want that liability protection. 

It’s possible to set up a limited company and leave it dormant until you’re ready to use it, too, although you’ll still have some filing responsibilities.   

In plain language, ask yourself this: “Is this still the right structure for where I’m going, not just where I began?” 

If you are considering making the move to a limited company, you must get professional advice from an accountant at every stage. It is one of the best investments you can make, because the numbers and rules shift while your goals and circumstances evolve.