I used to work in accountancy and after lots of uming and ering I started my business as a sole trader rather than a Limited company.
The benefits of limited versus sole trader are very confusing even for someone like myself.
Gordon Brown had made it more attractive to be a Limited Company rather than a sole trader as you were able to control your own income and therefore manipulate your tax liability. By making the first 10,000 profit at 0% tax is clearly a big benefit worth either 2,200 or 4,000 pounds in tax depending upon your individual position.
You could then take profits in the form of dividends which attracted the lowest tax rate of 10% until your dividend took you into the higher rate tax band i.e 40%. Also you would not be liable to NI on the dividend payment. Clearly this represents a huge tax saving if you are making large profits or are a large sharholder investor.
Consequently every man and his dog were changing from sole trader to limited and naturally Gordon realised that the loophole he had created to save tax for the elite shareholders of this world was actually benefitting hard working sole traders aswell. Therefore Gordon is now gradually closing the loophole he has created and eroding the benefits of limited. I believe the 10,000 at 0% has now gone.
Hence I decided to start as sole trader as it is my belief that the benefits of limited will continue to be eroded. Also there are more annual declarations and company books/registers to be kept for a limited company. At the early stages of my business it does not seem worth going limited. I can quite easily go limited later but I understand that it is a lot more difficult to go the other way i.e to a sole trader.
However should my profits continue to rise I shall go limited due to the other benefits of limited. You can effectively decide to leave profits in the company rather than take them out. Once profits have been taken out as a dividend they are taxable. By leaving the profits in the company you can reduce your tax liability in a good profitable year by taking more dividend in a later less profitable year - you can not do this as a sole trader unless you spend the profit on expenditure before your year end, which is effectively reducing your profit. Therefore it is easier to manipulate your overall income in a limited company, which can be good for any means-tested grants/child support agency assessments/tax credits etc etc.
As you can see the whole subject is very complicated and depends greatly on your own personal circumstances and your business profitability.
Gordon will inevitably keep tinkering with the tax situation.
I may have got some of my understanding of this wrong and would suggest that on a forum like this everyone will have bits of the puzzle but not the whole picture and therfore I would always suggest consulting with a Tax Specialist/Accountant who should be up todate with the latest legislation before deciding which trading status to adopt.
hope this helps but bet it dosn't
regards,
Nev.
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