Making the right choice between setting up a limited company vs sole trader can have significant implications for creative professionals. This decision impacts how much tax you pay, your personal liability if things go wrong and even how clients could perceive your business. For photographers, actors, musicians, filmmakers and other creative professionals, understanding the pros and cons of each structure is essential for long-term financial success.
This guide breaks down everything you need to know about limited companies – from formation costs to tax benefits – helping you make an informed decision about the best structure for your creative career.
Quick Navigation
- Is It Worth Setting Up a Limited Company?
- Can Anyone Set Up a Limited Company?
- Does It Cost to Set Up a Limited Company?
- How Much to Set Up a Limited Company Using an Accountant?
- How to Set Up a Limited Company Online?
- How Long to Set Up a Limited Company?
- Setting Up a Limited Company for Contracting
- Can You Set Up a Limited Company While Employed?
- Direct Comparison: Sole Trader vs. Limited Company
- When to Consider Transitioning from Sole Trader to Limited Company
- Next Steps After Setting Up a Limited Company
- FAQs
The benefits of a limited company vs sole trader
For many creative professionals, the decision about setting up a limited company vs sole trader comes down to tax efficiency and professional image. Here’s what you need to think about:
Tax advantages
Limited companies often provide tax benefits once your income reaches a certain level. While sole traders pay income tax on all profits (20-45% depending on your income band), limited company directors can take a combination of salary and dividends, potentially reducing their overall tax bill. Limited companies pay 19% corporation tax on profits up to £50,000, with rates increasing for higher profits. For creative professionals with profits over £50,000, the tax savings can be worthwhile, even after the additional costs of your accountant’s fees.
Limited liability protection
As a sole trader, you’re personally responsible for any business debts. This means your personal assets (including your home) could be at risk if things go wrong. A limited company creates a separate legal entity, protecting your personal assets from business liabilities – particularly important for creative businesses working on high-value projects.
Professional credibility
Many larger clients and agencies prefer working with limited companies. For creative professionals looking to secure bigger contracts or work internationally, a limited company structure may open more doors and create a more professional impression.
The drawbacks of a limited company vs sole trader
Running a limited company does involve:
- More paperwork and administrative responsibilities
- Stricter accounting requirements
- Higher accountancy costs
- Public disclosure of company information through Companies House[3]
- Annual filing requirements for accounts, confirmation statements, and corporation tax returns
For a photographer earning £60,000 in profit annually, switching from sole trader to limited company status could save approximately £4,000 in tax per year, even after accounting for additional costs – a significant sum that could be reinvested in equipment or marketing.
Want to know if a limited company would save you tax? Green & Peter can provide a personalised assessment of setting up a limited company vs sole trader status based on your specific income, expenses and future plans. Call us on 020 8446 8100 for a bespoke review or complete our online contact form.
Can anyone set up a limited company?
In short, yes – almost anyone can set up a limited company in the UK, but there are some basic requirements:
- You must be at least 16 years old to be a company director
- You need at least one director (which can be yourself)
- You need a registered office address in the UK (which could be your accountant’s office)
- Your company name must be unique and not offensive
For creative professionals, particularly those working internationally, it’s worth noting that non-UK residents can also be directors of UK companies, which may be useful for collaborative ventures or international projects.
As a director, you’ll have legal responsibilities including:
- Keeping accurate company records
- Filing accounts and tax returns on time
- Acting in the company’s best interests
- Following the company’s articles of association
These responsibilities shouldn’t be taken lightly, but with the right accountant, meeting these obligations can be straightforward. Give us a call and we can talk you through it.
Does it cost to set up a limited company?
Yes, there are costs involved in setting up a limited company, though they’re often more affordable than many creative professionals expect.
The essential costs include:
- Companies House registration fee: £50 for online registration (standard service) or £78 for same-day registration (if you’re in a hurry)
- Annual confirmation statement fee: £34
Optional but recommended costs:
- Accountancy fees for company setup and advice
- Business bank account (some have monthly fees)
While you can register a company yourself, many creative professionals choose to use an accountant to ensure everything is set up correctly from the start, with appropriate tax planning advice.
How much does it cost to set up a limited company using an accountant?
The total cost of setting up a limited company varies depending on the level of professional help you require:
Basic accountant service
- Typically, £100-£200 for basic company formation including:
- Companies House registration
- Articles of association
- Share certificates
- Initial tax advice
Comprehensive service
- £200-£500 for a complete package including:
- Everything in the basic service
- Business bank account introduction
- VAT registration if required
- PAYE setup
- Initial tax planning session
- Accounting software setup
For creative professionals, investing in proper setup can avoid costly mistakes and ensure you’re operating in the most tax-efficient way from day one.
Green & Peter offers competitive company formation packages specifically designed for creative professionals. Our service includes registration, initial tax advice, and ongoing support to ensure your new company starts off right. Contact us for current pricing.
How to set up a limited company online
Setting up a limited company online is a relatively straightforward process, but it’s easier than you think to make simple errors. If you want to do it yourself, here’s the step-by-step process:
- Choose a unique company name – Check availability on the Companies House website. Creative professionals should consider a name that works for their brand but also meets legal requirements.
- Prepare your SIC code – This describes what your company does. Common codes for creative professionals include:
- 90010 for performing arts
- 74201 for portrait photographic activities
- 59111 for motion picture production
- 90030 for artistic creation
- See the full list of SIC codes
- Identify company directors and shareholders – For most creative professionals, this will be just you, but you can have multiple directors and shareholders if needed.
- Decide on your registered office address – This must be a physical UK address and will be publicly visible. Many accountants offer to use their address for this purpose.
- Prepare your articles of association – Most companies use standard model articles, but you may need customised ones for specific arrangements.
- Register with Companies House – Complete the online application at gov.uk, providing all the details above and paying the £50 fee.
- Set up a business bank account – Once incorporated, you’ll need a separate bank account for your company.
- Register for tax – Within 3 months of starting to trade, you must register for Corporation Tax, and if needed, PAYE and VAT.
While this process is manageable for most people, an accountant can handle all these steps for you, ensuring everything is set up correctly.
How long does it take to set up a limited company?
The actual registration process with Companies House is remarkably quick:
- Standard service: 24 hours (£50)
- Same-day service: company registered by end of day if application completed by 3pm (£78)
However, the complete process of becoming fully operational usually takes longer:
- Business bank account: 1-4 weeks (banks’ due diligence processes can be lengthy)
- VAT registration: 2-6 weeks (can be longer if HMRC conducts additional checks)
- Setting up accounting systems: 1-2 weeks
- PAYE registration: 1-2 weeks
For most creative professionals, you should allow 4-6 weeks from deciding to form a company to being fully operational, though you can start trading as soon as your company is registered.
Setting up a limited company for contracting
For freelance creatives who work on contracts, a limited company can offer significant advantages:
IR35 considerations
IR35 legislation affects contractors who work like employees but bill through companies. Since 2021, medium and large private sector clients determine your IR35 status, not you. This means:
- If deemed “inside IR35,” you’ll effectively pay employment taxes without employee benefits
- If deemed “outside IR35,” a limited company remains tax-efficient
Benefits for creative contractors
- Potential tax savings through salary/dividend mix
- Professional image when bidding for contracts
- Ability to offset a wider range of business expenses
- Easier to collaborate with other freelancers on larger projects
For film directors, lighting technicians, sound engineers and other creative contractors, a limited company can be the most tax-efficient structure, potentially saving thousands in tax compared to PAYE arrangements.
Concerned about IR35 and contracting through a limited company? Our team at Green & Peter understands the unique challenges creative contractors face. Speak to one of our IR35 specialists by completing our online form or calling 020 8446 8100.
Can you set up a limited company and be employed?
Yes, you can certainly set up and run a limited company while being employed elsewhere. This is a common approach for creative professionals who are building their business alongside a day job.
What to consider:
- Check your employment contract for any restrictions on outside work
- Be transparent with your employer if required by your contract
- Be aware of the tax implications of having both employment and company income
- Consider the time required to manage company administration
- You may need to register for self-assessment as a company director
A photographer or musician with a day job may use a limited company to handle weekend or evening creative work, building up the business until it can replace employment income.
Direct comparison: Limited Company vs Sole Trader
To help you make an informed decision, here’s a direct comparison of both business structures:
Sole Trader advantages
- Simpler setup and administration – minimal paperwork to get started
- Lower startup and running costs – no registration fees or annual filings
- More privacy – your business details aren’t publicly available
- Complete control – all decisions and profits are yours alone
- Less complex accounting – simpler bookkeeping and tax returns
- Easier to close down – no formal dissolution process required
Sole Trader disadvantages
- Personal liability – your personal assets are at risk if the business fails
- Potentially higher tax burden – all profits taxed at income tax rates
- Limited funding options – may be harder to secure investment
- Less professional image – may be seen as less established by some clients
- Limited growth potential – harder to scale or sell the business
Limited company advantages
- Limited liability protection – your personal assets are protected
- Potentially lower tax burden – more tax planning opportunities
- Professional credibility – often perceived as more established
- Easier to sell or transfer – ownership can be transferred via shares
- Better funding options – easier to attract investment
- Tax-efficient pension contributions – higher employer contributions possible
Limited company disadvantages
- More administrative work – regular filings and compliance requirements
- Higher setup and running costs – registration fees and higher accountancy costs
- Less privacy – company information is publicly available
- Director responsibilities – legal duties that must be fulfilled
- More complex tax affairs – corporation tax, dividend tax, etc.
When to consider transitioning from Sole Trader to Limited Company
Many creative professionals start as sole traders and later transition to limited companies. Here’s when to consider making the switch:
Income thresholds
- When profits exceed approximately £40,000-£50,000, limited companies may become more tax-efficient (but this depends on your overall circumstances so consult your accountant)
- When you need to retain profits in the business for future investment
Business growth indicators
- You’re taking on larger projects or contracts
- You’re hiring subcontractors or employees
- You’re expanding into new markets or services
- Your liability risk is increasing with bigger projects
Client expectations
- Some clients prefer or require contractors to operate as limited companies
- International clients may find it easier to work with UK limited companies
A successful graphic designer who started as a sole trader but now earns £70,000 and works with international clients would likely benefit significantly from operating through a limited company.
Next steps after setting up a limited company
Once your company is registered, there are several important steps to take:
Essential registrations
- Register for Corporation Tax within 3 months
- Set up PAYE if you’ll be paying salaries (including to yourself)
- Register for VAT if your turnover will exceed £90,000
Accounting systems
- Set up cloud accounting software like Xero, QuickBooks or FreeAgent
- Create a system for tracking expenses and invoices
- Consider using accounting apps that capture receipts digitally
Compliance requirements
- Understand annual confirmation statement requirements
- Know your deadlines for filing accounts and tax returns
- Set up a separate business bank account
Director responsibilities
- Keep company records up to date
- Hold annual general meetings (even if you’re the only attendee)
- Make strategic decisions for the company’s future
Don’t navigate the post-formation requirements alone. Green & Peter can ensure your new company meets all its obligations to HMRC and Companies House. Book a consultation to set up efficient systems from day one.
A significant decision – get help to make the right one first time
Choosing between limited company vs sole trader status is a significant decision for creative professionals that can have substantial financial implications. While limited companies offer tax advantages, limited liability, and a professional image, they do require more administration and typically higher accountancy costs.
For creative professionals earning over £40,000-£50,000 profit, a limited company may be the most tax-efficient option. However, for those just starting out or with lower income levels, remaining as a sole trader may be simpler and more cost-effective.
Whatever your situation, getting professional advice tailored to your specific circumstances is invaluable in making the right choice.
Ready to explore whether a limited company is right for your creative business? Green & Peter offers a free 30-minute discovery call to discuss your specific situation. Call us today on 020 8446 8100 or complete our contact form to get started on your business journey.
NB All figures correct at the time of writing (March 2025). Please check gov.uk for up-to-date information
FAQs
Can I be the only director and shareholder of my limited company?
Yes, a limited company can have just one person who is both the director and 100% shareholder.
Do I need an accountant to run a limited company?
Legally no, but practically yes. Most creative professionals find that an accountant saves them time, money, and stress by ensuring compliance and optimising tax efficiency.
Can I change my company name after formation?
Yes, you can change your company name by filing a special resolution with Companies House and paying a small fee.
Will a limited company protect my creative intellectual property?
A limited company can own intellectual property, which may offer advantages for licensing and protection, but you should seek specific legal advice on IP matters.
Can I take money out of my limited company whenever I want?
You can take money as salary, dividends, or repayment of director’s loans, but each has different tax implications and must be properly documented.
Can my limited company operate in multiple creative fields?
Yes, a single limited company can operate across multiple creative disciplines. You can list multiple SIC codes to reflect different activities.
How do I close a limited company if it doesn’t work out?
Companies can be closed through dissolution for simple cases or formal liquidation for more complex situations. Consult an accountant before taking this step.
