One of the most common questions we get from online coaches as their income grows is: should I stay as a sole trader or set up a limited company? It’s a good question, and the honest answer is that it depends on your circumstances.
This guide breaks down the key differences, the tax implications, and the point at which switching usually makes financial sense.
What Is the Difference?
Sole Trader
As a sole trader, you and your business are legally the same entity. All income from your coaching is your personal income, and you pay Income Tax and National Insurance on your profits through Self Assessment. It’s simple to set up, has minimal ongoing admin, and is perfectly appropriate for the vast majority of coaches starting out.
Limited Company
A limited company is a separate legal entity from you as an individual. You become a director and usually a shareholder of the company. The company pays Corporation Tax on its profits, and you extract income through a combination of salary and dividends. There is more admin involved, but at higher income levels the tax saving can be significant.
How Is Tax Different for Each Structure?
Sole Trader Tax
As a sole trader, you pay:
- Income Tax: 20% on profits between £12,570 and £50,270, rising to 40% above that
- Class 4 National Insurance: 6% on profits between £12,570 and £50,270, 2% above
- Class 2 National Insurance: a flat annual amount, currently paid through your tax return
Your personal allowance (£12,570 in 2024/25) means the first £12,570 of profit is tax-free.
Limited Company Tax
Through a limited company, the tax picture looks different:
- Corporation Tax: 19% on profits up to £50,000 (small profits rate), 25% above £250,000, with marginal relief in between
- You take a small salary (usually up to the National Insurance threshold) to keep NI costs low
- Additional income is taken as dividends, which are taxed at lower rates than salary
- The first £500 of dividends per year is tax-free
The combination of lower Corporation Tax and dividend tax rates is what creates the saving. But it only works in your favour once your profits are high enough.
At What Income Level Does a Limited Company Make Sense?
As a rough guide, most accountants suggest considering a limited company when your self-employment profits consistently exceed around £30,000 to £40,000 per year. Below that, the tax saving is often outweighed by the additional accountancy costs and admin burden.
Above £50,000, the case becomes stronger, particularly because sole traders pay 40% Income Tax on earnings above this level, while limited company directors can structure their income more efficiently.
However, this is a simplified view. Your personal circumstances, other income sources, whether you’re drawing all the profit or retaining some in the company, and your plans for growth all affect the calculation. This is exactly the kind of planning conversation we have with our coaching clients.
What Are the Practical Differences in Running Each?
Sole Trader Admin
- Register with HMRC for Self Assessment
- File one tax return per year (31 January deadline)
- Keep records of income and expenses
- No Companies House filings required
- No requirement to publish accounts publicly
Limited Company Admin
- Register the company at Companies House
- File annual accounts with Companies House (these are publicly visible)
- Submit a Corporation Tax return to HMRC each year
- Run payroll for your salary (even a small one requires a payroll scheme)
- File a personal Self Assessment return for dividends and salary
- Maintain statutory records and hold at least one director’s meeting per year
The additional admin is manageable with the right accountant, but it does require more input from you, and more cost in accountancy fees. This is worth factoring into any comparison.
What About IR35?
IR35 is tax legislation designed to prevent disguised employment, where a worker provides services through a limited company but is effectively working like an employee of the client. For most online coaches who have multiple clients, run group programmes, or sell courses, IR35 is unlikely to apply.
However, if you have one main client who controls when, how, and where you work, HMRC may argue your arrangement resembles employment. This is an area worth discussing with an accountant if your client base is narrow.
HMRC’s Check Employment Status for Tax (CEST) tool gives an initial indication, though professional advice is always recommended for borderline cases.
Can You Switch Between the Two?
Yes. Many coaches start as sole traders and incorporate (move to a limited company) once their income justifies it. The transition involves closing the sole trader registration with HMRC and setting up the company, but it’s a well-established process.
There are also tax implications to consider when transferring assets or goodwill into a new company, so it’s worth planning this carefully with an accountant rather than doing it mid-year without advice.
Which Should You Choose?
If you’re just starting out or your profits are below £30,000: start as a sole trader. It’s simpler, cheaper to run, and the tax difference at lower income levels is minimal.
If your profits are consistently above £35,000 to £40,000 and growing: it’s worth modelling the limited company option. A good accountant will run the numbers for your specific situation and give you a clear answer.
At Simplr Accounting, this kind of planning conversation is part of what we do. We won’t push you towards a limited company just to increase your fees. We’ll give you an honest view of what makes sense for where you are now and where you’re heading.
Talk It Through With Us
If you’re an online coach wondering whether it’s time to switch structures, or just want to make sure your current setup is as tax-efficient as possible, book a free discovery call with Simplr Accounting.
You can also read more about how we support online coaches on our online coaches page or browse our other guides including online coach business expenses UK.
Book your call at simplraccounting.co.uk.