Self-Employed Vs Limited Company – which is right for my small business?

Running a small business presents all manner of challenges but one of the more fundamental is to decide upon which operational structure and status to adopt. A particularly relevant distinction in this context is that between operating as on a self-employed basis or as a limited company.

Strictly speaking there is no right or wrong option for any business or any individual but it can be very important to determine which route is right for you. Here’s a look at some of the essential pros and cons and some of the key distinctions between being self-employed and setting up a limited company.


There’s no doubt that setting up and operating on a self-employed basis is the most straightforward approach to running a small business. All it really involves is informing the relevant authorities that you are establishing a small scale enterprise and making arrangements to pay taxes on any earnings you’re able to generate.

For anyone who works from home and offers services primarily as an individual, this simplicity can be important and can make self-employed status a preferable option over setting up a limited company.

However, if your small business has lots of customers and a number of employees then a degree of financial and administrative complexity will inevitably be brought into the equation. In which case, the benefits of managing your small business as a limited company may become more apparent and attractive.


The issue of taxation and how best to minimise any associated liabilities is inevitably a key area of focus for any small business. In this context, the nature of your status is particularly relevant because it effectively determines whether the profits generated by your business are taxed as personal income or as company earnings.

Limited companies are taxed as independent entities and an owner or director’s income is then taxed separately and on a personal basis. Crucially, the scale of tax liabilities can, depending on the circumstances and the dynamics involved, be considerably lower from an individual’s perspective if you operate as a limited company rather than on a self-employed basis.

Limiting liability

If you are running a small business on a self-employed basis then it is perfectly clear under any circumstances who is responsible for all issues that emerge in direct relation to those operations. In practical terms, this means that any legal issues or disputes that emerge will be addressed specifically to the individual sole trader who lies at the centre of the enterprise in question.

By contrast, if you are running a limited company then disputes of any sort relating to the business will be addressed and handled from a legal point of view from the perspective of involving a business entity rather than any one specific individual.

This distinction might never be particularly relevant or pertinent but if you are a company boss then having that separation between yourself as an individual and your business can be reassuring and valuable in certain circumstances.

Presenting a certain image

Making a decision on whether to operate on a self-employed basis or to set up a limited company will depend in part on the nature and extent of the ambitions you have for your business.

If your aim is to be highly regarded as an individual provider of products or services then working as a solo operator makes sense. However, if you want to establish a brand identity and have your business rather than yourself be at the forefront of what offering and aiming to achieve then becoming a limited company could be a better way to go.

Funding and finances

The distinction between being self-employed and operating a limited company can be particularly important when it comes to the process of securing funding and managing your finances.

In short, if you want to gain funding in support of your business operations then establishing a limited company gives you a better chance of doing so because it will be viewed as a distinct entity that has greater scope to grow. Being self-employed generally involves taking it upon yourself as an individual to deal with all the financial aspects of your operations, including taking on any loans you manage to secure on a personal basis rather than as a business.

Regardless though of whether you decide to operate on a self-employed basis or set up a limited company, establishing a good understanding with a quality accountant can be vitally important as a means of saving money but also of figuring out exactly how best to build confidently for the future.

This guest post is from David Tattersall from Hand Picked Accountants. David has wealth of experience in the financial and B2B sectors and excels in connecting business owners with the very best professional services.


CBNation helps entrepreneurs and business owners succeed with visibility, resources and connections. CEO Blog Nation is a community of blogs for entrepreneurs and business owners. Started in much the same way as most small businesses, CEO Blog Nation captures the essence of entrepreneurship by allowing entrepreneurs and business owners to have a voice. CEO Blog Nation provides news, information, events and even startup business tips for entrepreneurs, startups and business owners to succeed.

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