Flexible use of losses
Many businesses make a loss in the first few years. If you have left a job to become self employed, you can offset trading losses against previous employment income. Sole trader losses generally, can also be offset against other income such as savings interest, dividends, or rental income. This will often lead to a repayment of tax which will help your business continue at this difficult time.
You cannot set Limited Company losses against personal income.
Expenses Expenses incurred in you business attract tax relief. The way that you can claim these as a Sole Trader is more flexible than for a Limited Company.
Motor vehicles are particularly more tax efficient when they are run via a Sole Trader business.
A sole trader’s accountant only submits information to HMRC and nobody else can see it. Limited companies file accounts with Companies House, which everyone can access – there is a public record of what you are doing.
Reduced paperwork and costs
Limited companies must comply with the Companies Act and submit annual statutory accounts and an annual return.
The accountancy fees tend to be lower for a sole trader.
Change of circumstances If you give up on your business after a few months, it is easier to close this down if it is a sole trader. If you setup a limited company, you will have to get it struck off which involves more processes than a sole trader.
Lower tax on capital gains If you are mostly into investment, with low regular income but a gain when you sell in the future, you’re likely to pay less tax as an individual than if you invested through Limited Company. This is because of the low rate of Capital Gains Tax (currently 18%), entrepreneurs relief, and your annual exemption.