Can I Be a Sole Trader and Have a Limited Company?

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Although it is possible and legal for a sole trader to have a limited company, it is not advisable because it would be difficult to administer and manage both businesses simultaneously. Why would this be the case? Let us first go through the differences between a sole trader and a limited company.

What is a sole trader?

A sole trader is a self-employed person who is also the sole owner of their business. There is no legal separation between the business owner and the business itself because they are the same.

In this arrangement, the business owner may keep the profits they have made after paying taxes. They are also solely responsible for the business’s success or its losses or failure.

What is a limited company?

On the other hand, a limited company is a different legal entity from the business owner. One person may form it, or it may also have employees. When you form a limited company, you also serve as your business’s director.

A director is responsible for the legal and financial decisions of the business. However, the business’s assets and liabilities are different from the director’s personal finances and properties. This only means that a business’s profits and losses strictly belong to the company, and the director only acts on behalf of the limited company.

3 Questions to Ask Yourself Before Having a Sole Trade and a Limited Company

From the HM Revenue & Customs (HMRC) standpoint, there is nothing wrong with a sole trader business running with another business that is being operated as a limited company. However, as mentioned, doing this may be quite tricky from the operations and tax perspectives.

Here are three questions you may need to ask yourself first before deciding to have a sole trade and a limited company:

How do I make sure that both businesses are different and separated?

As defined, a sole trader is the same as the business owner. If the business owner also is the director of a limited company, this may or may not mean that the sole trader is also part of the limited company and its operations.

How do I manage both businesses’ finances?

Not only will problems arise in managing the businesses, but also in both businesses’ financial aspects. This may be easy to answer when both firms are going well and can finance their operations well separately. But what happens when one business is short on cash? 

There will always be the temptation to pay for the other business’ costs using your bank account, but that will mean that your business as a sole trader will get involved; there is nothing wrong with this. However, keeping a record of the inter-business relationship—debts, liabilities, etc.—can easily become messy.

Can I manage the taxes of both businesses well?

When talking about taxes, the owner must file the correct income and expenditure correctly for both businesses. This may become confusing when the sole trader “lends” money to the limited company and will appear to have loaned money to the company director. When the company also pays money to the sole trader, it also has to appear on the official records.

Final Thoughts

While it is possible to be a sole trader and have a limited company, it isn’t very clear to manage both of them simultaneously as two separate entities. One recommendation we can give is to keep both businesses’ finances separate from each other. This way, you can easily see both of them as two different businesses.

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Annette Ferguson

Annette Ferguson

Owner of Annette & Co. - Chartered Accountants & Certifed Profit First Professionals. Helping Online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.

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