Sports Instructor: Sole Trader or Limited Company?

At some point in your journey as an independent sports instructor, you’ll be standing at the Sole Trader or Limited Company crossroad. Sole Traders have few administrative requirements and can be set up quickly. Limited Companies offer more security but require more paperwork.

But which road is better if you’re a sports instructor? Sole Trader or Limited Company? Well, it depends on a few factors.

Sole Trader or Limited Company?

1. Do you trade with large businesses?

YES: Some large businesses prefer dealing with Limited Companies, especially in compliance, financial transactions etc. The reason for this is that as the Director of a Limited Company, you have obligations to keep your business on the right side of the law, and to document it with Companies’ House. This makes it easier for large businesses to rest assured that you are a legit business.

NO: If you earn your money trading mostly with individuals and small businesses, operating as a Sole Trader is unlikely to be an issue. As a Sole Trader, you should still manage your business professionally. Do this using a consistent brand name and/or logo, professional address, by sending professional-looking invoices and issuing receipts for payments you take in.

2. Have you got a brand name?

NO: If like more sports instructors, you are using your name, or a combination of name/activity, and are active on a local basis, then registering your brand legally might not be critical.

YES: Registering your business as a Limited Company automatically protects your brand. So if your brand name is important to you and makes you unique, it might be worth registering a Limited Company.

3. Are you earning a lot of money?

NO: As a Sole Trader, you will declare your earnings through a year-end tax return, and just as an individual, you can benefit from the personal allowance (currently £11K tax-free per year). This is not the case with a Limited Company, where all your profits are subject to 20% Corporation Tax.

YES: As soon as your earnings reach the level where you would be subject to 40% personal tax, you might be better off switching to a Limited Company – where you’ll stay in the 20% bracket.

To know where that threshold is, you can use an online calculator

4. Are you admin-savvy?

NO: If you are just starting and want to limit complexity, operating as a Sole Trader only requires you to keep a record of your income and deductible outgoings (see our post on simple accounting).

YES: Limited Companies need to file accounts on a yearly basis, whereas Sole Traders just need to fill a standard, individual tax return. So if you already have a good accountant supporting you, preparing year-end accounts for a Limited Company should not be an issue. Also, until you make a healthy turnover, you are likely to fall under the Small Business Exemption, which allow you to submit abbreviated accounts.

5. Are you looking to build a business you can sell on?

NO: Do you plan to work for yourself as a one-person band for the foreseeable future? Sole Trader is perfect for you.

YES: Are you building a brand that might be interesting for investors later on? Go for the Limited Company. Since Limited Companies are made of shares, you will be able to sell some or all of them. Your regular accounts filings will be essential to show the value of your business to investors. So start right now by registering your company and maintaining accurate financial records.

Conclusion

Just started and want to focus on doing great work straight away? The Sole Trader approach will work well. You can switch to a Limited Company later on, once your business has taken off. Either way, don’t take our word for it. Because every business is different, you should seek the advice of an accountant.

About the Author Julie Freeman

Marketing @ OffPeaks. A Swiss expat to London, passionate about the mountains - hiking them, running them or biking on them. Also passionate about helping sports instructors grow their business.

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