For many creative and tech professionals, freelancing is the natural first step. It’s quick to set up, flexible, and allows you to focus on your craft. But as your income grows and clients get bigger, the question often arises: should I stay a freelancer, or set up a limited company?

The truth is, there’s no one-size-fits-all answer. It depends on your income, goals, and how you want to run your business. Below, we’ve broken down the key differences, pros, and cons to help you make an informed choice.

What’s the Difference?

  • Freelancer (sole trader): A freelancer is a type of self-employed individual who tends to work on a project-by-project basis. Freelancers have to consider Income Tax and this is reported via Self Assessment each year.
  • Limited company: This is a separate legal entity. You’re a director/shareholder of the company. You have separate liability from the business and have to consider both income tax (typically paid via PAYE and dividends) and Corporation Tax.

Pros and Cons of Freelancer:

Advantages

  • Simple and quick to set up.
  • Straightforward tax reporting (Self-Assessment).
  • Lower admin costs.

 

Disadvantages

  • Higher tax once you pass certain income thresholds compared to paying via PAYE/Divided structure.
  • You’re personally liable for debts and legal issues.
  • Some larger clients may prefer to work with limited companies.

Pros and Cons of Ltd:

 Advantages

  • Potential tax efficiencies by combining salary and dividends.
  • Limited liability, you are not personally liable for the business.
  • More professional image, appealing to bigger clients.
  • Flexibility if you want to grow, hire, or even sell your business later.

 Disadvantages

  • More admin: Companies House filings, annual accounts, corporation tax returns, payroll etc.
  • Higher accountancy fees due to the additional accounts and filing requirements.
  • Stricter compliance with HMRC.

Other Considerations:

VAT must be applied for either Freelancer or Ltd if any of the following apply;

  • your total taxable turnover for the last 12 months goes over £90,000 (the  VAT  threshold)
  • you expect your taxable turnover to go over £90,000 in the next 30 days

Funding & Finance

  • Many lenders or funding opportunities are restricted to Ltd companies therefore there is more access to these types of funds via the Ltd company route.

Insurance

  • Both freelancers and companies should consider professional indemnity and public liability insurance.

Goals

  • Do you see yourself as a solo freelancer long-term, or building a studio or business with a growing team?

Conclusion

Deciding between freelancing and going via the Ltd route isn’t just about tax, it’s about liability, perception, and long-term goals. For some, the simplicity of freelancing wins. For others, the long term goal is to build a team beyond themselves and also maximise their tax position and work with larger vendors.

At DASH Accounting Services, we work closely with creative and tech businesses to help them choose the right structure and to make sure they’re getting the best possible tax and financial outcomes.

If you would like tailored advice please get in touch via our contact us page.