The Two Most Common Business Structures for UK Freelancers
When you start freelancing in the UK, you'll need to choose a legal structure. The two most common options are sole trader and limited company. Each has different implications for tax, liability, and how you invoice clients.
Sole Trader: Simple and Straightforward
As a sole trader, you and your business are legally the same entity. Key facts:
- Register with HMRC for Self Assessment — simple online process
- Pay Income Tax on profits (20%, 40%, or 45% depending on earnings)
- Pay Class 2 and Class 4 National Insurance
- Personally liable for any business debts
- Less admin — just a Self Assessment tax return each year
Limited Company: More Tax Efficient at Higher Earnings
A limited company is a separate legal entity from you personally. Key facts:
- Register with Companies House (takes about 24 hours, costs £50)
- Pay Corporation Tax on profits (25% from April 2023 for profits over £250k)
- Pay yourself a salary and dividends — often more tax efficient
- Limited liability — your personal assets are protected
- More admin — annual accounts, confirmation statement, payroll
Which Is More Tax Efficient?
Generally speaking:
- Under £30,000/year — sole trader is usually simpler and similar tax burden
- Over £40,000/year — limited company often becomes more tax efficient
Always consult an accountant before making the decision — the right answer depends on your specific circumstances.
Invoicing Differences
As a sole trader, your invoices use your personal name (or trading name). As a limited company, invoices must show your registered company name, company number, and registered address.
invly supports both structures — just set up your company details in your profile and every invoice will automatically include the right information.