Sole Trader vs Limited Company: Which Is Best for Virtual Assistants?

6 days ago
7 min read

A question I am often asked by those starting a new Virtual Assistant business, is whether it is better to register as a sole trader or a limited company.

It’s an important question - the right choice affects your taxes, responsibilities, and how you run your business day-to-day.

Most VAs set up initially as sole traders. Many of them are working part-time and are on a basic tax rate. Operating as a sole trader can be simpler, lower cost, and easier to manage alongside other work or as a new business. But before you decide, it’s important to understand how each structure works - and how they would affect you in running your business.

Sole trader vs limited company: what’s the difference in the UK?

There are a number of key differences between operating as a sole trader and running a limited company:

Sole Trader	Limited Company
Responsible for personal and business debts	Business finances are separate from personal finances, so you are not personally liable for business debts (in most cases)
Minimal paperwork required by HMRC, which you can do yourself - although digital record-keeping and quarterly reporting for Making Tax Digital do up the admin once you reach the income threshold.	Higher level of reporting required, including strict record-keeping and filing requirements, which may require accountancy support
Easiest business structure to set up	More complex to set up and run
Business is run by you and you retain all net profits. Your pay is not a business expense	Directors and staff are paid a salary (a business expense) and can also take dividends from profits
Your financial information remains private	Some financial records are publicly available via Companies House, though they are still minimal for most limited companies.
Pay Income Tax (20–45%) on profits above your Personal Allowance	Company pays Corporation Tax (19–25% depending on profits). You pay Income Tax and Dividend Tax (10.75–39.35%) personally on salary and dividends taken from the business
Pay Class 4 National Insurance (and optional Class 2 contributions protect State Pension entitlement)	May pay Employer and Employee National Insurance via PAYE, usually minimised through a tax-efficient salary
No automatic protection over your trading name	The business name is registered and has some protection
Run by one person	Can be run by one or multiple directors/shareholders
Can incorporate at a later date if needed	Can return to sole trader status, but this involves formal processes such as closing the company and settling obligations

(It is important to remember that VAT registration is separate from your business structure. You must register once your turnover hits the threshold (currently £90,000), regardless of whether you are a sole trader or limited company - and you cannot charge VAT without that registration.)

Should I be a sole trader or limited company as a Virtual Assistant?

So, which is it going to be?

I would always recommend talking to an accountant in the first instance, as they will be best placed to advise based on your personal circumstances.

However, in my opinion and after my own research, I believe most VAs will be better off starting out as sole traders. There are additional expenses and requirements involved with operating as a limited company that sole traders don’t have.

Sole traders can often manage their own bookkeeping and tax, although this is changing slightly with the introduction of Making Tax Digital.

If MTD applies to you, you will need to keep digital records, using MTD-compliant software, and submit quarterly updates to HMRC, rather than just one annual Self Assessment.

Currently, MTD applies (with a few exemptions) if you have a qualifying gross income over £50,000 (dropping to £30,000 from April 2027 and possibly £20,000 in 2028).

If you are earning below this as a sole trader, then you can carry on with traditional, annual Self Assessment tax returns.

The main disadvantage of setting up as a sole trader is that you are personally liable for all of your business debts, should you have any.

When does it make sense to switch to a limited company?

So when might you want to set up as a limited company?

Often, this is profit-driven rather than turnover-driven. There can be a financial tipping point when you are bringing in profits (not turnover) of around £50,000+, though this depends on:

How much your accountant charges
Whether you’re making pension contributions
Your wider income
If you have a partner or family member you would also like to take income from the business
And, of course, whatever the government is doing with tax rates

Once your income tax is higher than potential corporation tax, it might be financially sensible to make the change.

Sole trader vs limited company tax example (UK)

Here’s a quick illustration to see how it might pan out…

(Figures are illustrative and based on current tax rates at the time of writing. Always check with an accountant for your specific situation.)

Example scenario

Tax year 2026/27
Annual income: £50,000
Expenses: £5,000
Profit: £45,000 in either scenario

Sole Trader

You’ll have to pay:

20% Income Tax on profits above the Personal Allowance (£12,570)
Class 4 National Insurance
(Class 2 NI is no longer required, although this may be paid voluntarily in some cases)

So you’ll pay:

£6,486 Income Tax on taxable profits of £32,430.00
£1,945.80 Class 4 NI

Leaving you with a total take-home of £36,568.20

Limited Company

You take a small salary (typically around the Personal Allowance), which attracts little to no Income Tax or National Insurance.

The remaining profit is taxed via Corporation Tax, and you then take dividends.

Approximate breakdown:

Salary: £12,570
Employers NI: £1,135.50
Remaining profit: £31,294.50
Corporation Tax (19% for profits below £50,000): £5,945.96
Dividends available: £25,348.55

You’ll have to pay 10.75% dividend tax on dividends above the current allowance (£500)

So you’ll pay:

£2,617.47 dividend tax

Leaving you with a total take-home of £35,301.08

You can see in this example that operating as a sole trader means you’re better off.

And that’s before factoring in:

Accountancy fees
Software costs
Additional admin time
Potential pension contributions or tax planning strategies

This is a great tool if you want to run the numbers for your own situation: https://www.employedandselfemployed.co.uk

And a quick recommendation for my fabulous accountants, Sam and his team at Price Accounting who helped me to evolve from a sole trader to a limited company, answer all of my many questions, and have also come into The VA Village to deliver an amazing masterclass, answering even more questions than this blog!

Key takeaways for sole trader vs limited company as a Virtual Assistant

Most Virtual Assistants start as sole traders because it’s simpler, lower cost, and easier to manage
A limited company can become more tax-efficient as your profits grow (often around £50,000+, depending on your situation)
Sole traders now need to be aware of Making Tax Digital, including digital record-keeping and quarterly reporting
Limited companies come with more admin, costs, and responsibilities, but offer separation between personal and business finances
VAT registration is separate from your business structure and applies once you hit the threshold
There is no one-size-fits-all answer - your decision should be based on your profits, goals, and personal circumstances

FAQs

Can I start as a sole trader and become a limited company later?

Yes - and many VAs do exactly this. Starting as a sole trader keeps things simple while you get established, and you can switch to a limited company as your profits grow.

Do I need an accountant as a sole trader?

Not necessarily. Many sole traders manage their own bookkeeping and tax, especially in the early stages. However, with Making Tax Digital introducing more frequent reporting, some VAs choose to get support.

Is a limited company more tax-efficient?

It can be - but only once you reach a certain level of profit. For many VAs in the early stages, the difference is small and can be offset by accountant fees and additional admin.

What is the main downside of being a sole trader?

You are personally liable for any business debts. This means your personal finances could be at risk if your business runs into financial difficulty.

Do I need to register for VAT as a Virtual Assistant?

Only once your turnover reaches the VAT threshold (currently £90,000). This applies whether you are a sole trader or a limited company.

Is my business name protected as a sole trader?

No - there is no automatic protection. Even with a limited company, protection is limited, and full protection typically requires registering a trademark.

Next steps

The first step is to decide which business structure suits you best for right now - sole trader or limited company. Once you’ve made that decision, you can make your business official by:

Registering as a sole trader with HMRC, or
Setting up a limited company with Companies House

After registration, you can:

Open a business bank account
Set up digital record-keeping (Making Tax Digital compliant if required)
Register for VAT if you expect to hit the threshold
Start invoicing clients and delivering your services confidently

If you’re still unsure, speaking to an accountant will give you clarity based on your personal circumstances.

If you’d like to hear how other Virtual Assistants have approached this decision - and what’s worked for them in practice - you’ll find plenty of support inside The VA Village. As well as a community of VAs at all stages of business, you’ll also get access to training and previous masterclasses, including sessions from a qualified accountant on choosing your business structure and a walkthrough of completing a Self Assessment tax return.

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About the author:

Kayleigh Johnstone is the founder of COZ & Co, an award-winning Business Support & Visibility Agency, and the creator of The VA Village. As a qualified EMCC Coach and Mentor, Kayleigh is dedicated to helping incredible women launch and grow profitable, flexible Virtual Assistant businesses. A recognised leader in the UK small business community and a Small Biz 100 featured entrepreneur, she provides a clear blueprint for VAs who want to stop chasing the 9-to-5 and build a guilt-free business that values their individual brilliance and general neurospicy awesomeness.

Note: all information was accurate as of August 2026; if you are reading this at a later date, please note that it may be out of date. Please verify independently. This information has been shared to give you a place to start your research and should not be taken as tax or financial advice. You should always talk to an accountant or financial advisor if you have questions.