Should You Operate as a Sole Trader or Company?

One of the most common questions we get at Nationwide Accountants is: "Should I set up as a sole trader or a company?" The answer depends on your income, risk profile, and long-term goals. Here is what you need to know.

What is a Sole Trader?

A sole trader is the simplest and cheapest structure to set up. You operate as an individual, your business income is taxed at your personal income tax rate, and there is no separation between you and the business. You are personally liable for all debts.

What is a Company?

A company is a separate legal entity. It pays a flat tax rate (25% for base rate entities or 30% otherwise), which can be advantageous once your income exceeds certain thresholds. Directors and shareholders have limited liability, protecting personal assets.

When a Sole Trader Makes Sense

• You are just starting out with minimal income
• Your net profit is under approximately $100,000 per year
• You want a simple, low-cost structure
• You have minimal business risk or liability exposure

When a Company Makes Sense

• Your net profit exceeds $100,000 and you want to retain profits in the business
• You want to protect personal assets from business liability
• You are planning to bring in investors or partners
• You want to split income between shareholders (e.g. a spouse)
• You are planning to sell the business in future

What About a Trust?

For many business owners and investors, a discretionary (family) trust offers even greater tax flexibility. Trusts allow income to be distributed to beneficiaries on lower tax rates, which can result in significant savings. This is something our team can walk you through in detail.

The Real Cost of Getting It Wrong

Choosing the wrong structure can mean paying more tax than necessary, losing asset protection, or facing costly restructuring down the track. Getting the right advice from the start is far cheaper than fixing it later.