Sole trader vs company

In this lesson

1. 0:00 Sole trader versus company overview
2. 1:07 Corporation tax and capital allowances
3. 2:05 Profit extraction methods explained
4. 3:02 Loss relief options compared
5. 5:03 Terminal loss relief and VAT registration
6. 6:02 Capital gains and business disposal reliefs
7. 7:00 Choosing your trading entity structure
8. 8:16 Profit extraction summary and pension contributions

About this lesson

You'll discover how profits are taxed differently (income tax for sole traders versus corporation tax for companies), the various ways to extract profit from each structure, and how loss relief works under each regime. The video also covers capital gains tax implications, VAT registration, and practical considerations like liability protection and pension contributions, helping you understand which trading entity is most tax-efficient in different situations. The lesson breaks down profit extraction clearly: sole traders pay income tax on all trading profits regardless of drawings, while companies can strategically use salaries and dividends to minimise tax. You'll learn why dividends are often more attractive to individuals (lower tax rates, no national insurance) but why salaries matter for companies (deductible, generate pension-relevant earnings). Special reliefs like opening years loss relief for sole traders and terminal loss relief are explained, along with how each structure handles capital gains and business disposals. By the end, you'll understand the practical factors that determine whether to trade as a sole trader or company: if you expect early losses, sole trader status is advantageous; if you want to limit liability and optimise tax through flexible profit extraction, a company structure typically wins. This knowledge directly supports exam questions across taxation papers where you need to advise on trading structures and their tax consequences.

Duration: 9m