Sole Trader vs Limited Company: What’s Best for UK Creatives?

When you’re a self-employed creative — whether you’re a musician, designer, filmmaker or freelance actor — your focus is usually on the next gig, not the next tax return. But one of the biggest decisions you’ll face is how to set up your business: sole trader or limited company?

It might sound like dry admin, but the choice can shape how much tax you pay, how you manage your accounts, and even how clients see you. At Creative & Numbers, we specialise in accounting for creatives, so let’s break it down in plain English.

What does being a sole trader mean?

A sole trader is the simplest way to work for yourself. You and your business are legally the same thing. That means:

• You keep all your profits after tax

• You’re personally responsible for any losses

• You file one annual Self Assessment tax return with HMRC

• You pay Income Tax and National Insurance on your profits
  

For many creatives just starting out, this setup works well. It’s quick, affordable, and you can get on with your craft without drowning in paperwork.

And what about a limited company?

A limited company is a separate legal entity. You own shares in it, and you can be both a director and shareholder. Key points:

• The company’s money isn’t your money until you pay yourself (salary or dividends)

• The company pays Corporation Tax on its profits

• You can limit your personal liability if things go wrong

• You’ll need to file annual accounts with Companies House and tax returns with HMRC

It’s more admin, but it can also look more professional and may reduce your overall tax bill once your earnings grow.

Tax differences creatives need to know

This is often the big deciding factor.

• Sole traders: Pay Income Tax (20%, 40% or 45% depending on your band) and Class 2/Class 4 National Insurance.

• Limited companies: Pay Corporation Tax (25% from April 2023) on profits, then you pay personal tax on what you take out as dividends or salary.

  
  

If your creative income is modest, sole trader status is usually simpler and more tax-efficient. But once you’re earning above, say, £40,000–£50,000 a year, a limited company can sometimes help reduce your overall tax bill.

Which option offers more protection?

• As a sole trader, you’re personally liable for debts. If you can’t pay, your personal assets are at risk.

• A limited company offers “limited liability” — meaning your personal assets are protected if the business struggles.
  

For creatives working on larger productions, big commissions, or collaborating with agencies, this peace of mind can be valuable.

What about credibility and client perception?

It may not seem fair, but some clients and agencies take a limited company more seriously. For example, a production company might prefer to hire a limited company for compliance reasons.

On the other hand, many creatives thrive as sole traders, especially in industries where freelance flexibility is the norm (musicians, photographers, theatre artists).

The admin load: how much extra work is it?

• Sole trader: Just one Self Assessment per year, plus keeping records of income and expenses.

• Limited company: Annual accounts, a Corporation Tax return, and director responsibilities like filing with Companies House.
  

If paperwork gives you nightmares, a sole trader setup is easier. But don’t forget — with an accountant like Creative & Numbers, much of this stress can be taken off your shoulders.

Costs to consider

• Sole trader: No setup cost beyond HMRC registration.

• Limited company: Small Companies House registration fee, plus higher accounting fees due to more admin.
  

For many creatives, this extra cost is only worth it once income is steady and growing.

VAT considerations

Whichever structure you choose, you’ll need to register for VAT if your turnover goes above £90,000 (2024/25 threshold). This applies to both sole traders and limited companies.

Some creatives also choose voluntary VAT registration earlier if it helps with client relationships (e.g., production houses already expecting VAT invoices).

So — which is right for you?

There’s no one-size-fits-all answer.

• If you’re just starting out, with unpredictable income or smaller gigs, being a sole trader is usually the most flexible choice.

• If you’re earning consistently, want to reduce tax, or need more credibility with bigger clients, a limited company might be better.
  

At Creative & Numbers, we know every creative’s journey is unique. That’s why we sit down with you, look at your income, your goals, and your projects, then guide you towards the best setup.

Final thoughts

Choosing between sole trader and limited company isn’t about ticking boxes — it’s about shaping your creative career in a way that works financially and practically.

The good news? You don’t have to figure it out alone. At Creative & Numbers, we specialise in accounting for creatives across the UK. Let us handle the tax talk so you can focus on your next big idea.

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Ready to take the stress out of tax? Speak to Creative & Numbers today and we’ll help you choose the right path — so you can spend less time worrying about HMRC and more time creating. Book a free 30-minute consultation with Creative & Numbers today.