Glossary

Sole trader vs limited company

A sole trader contracts in a personal name and is personally liable. A limited company is a separate legal person; the company is on the hook, not the director, unless there is a guarantee. Switching from one to the other is a , not a letterhead change. IR35 / off-payroll rules can still apply to a personal service company.

Last updated 28 October 2026

The first question on a freelance paper is who the counterparty is. Sam Lee trading as Harbour is Sam Lee. Harbour Studio Ltd is a company. Invoices, VAT, and who you sue follow that choice. Capacity is usually straightforward for both; the difference is whose assets answer for a breach.

We put the legal name and, for a company, the number, at the top. If a sole trader incorporates mid-job, Lex will not silently restyle the paper. That is a novation the client has to sign. Off-payroll working (ITEPA 2003 Chapter 10) can still treat a personal service company as if the individual were in the client’s business. The checklist is at /guides/ir35-contract-clauses-checklist-uk.

Do I need to novate if I incorporate?

Yes, if the existing paper is in your personal name. The company did not sign it. Changing the invoice footer is not a transfer of the duties. All three parties sign a novation so the company takes the rights and the obligations and you are released. See novation.

Does a limited company remove IR35?

No. Chapter 10 ITEPA 2003 can still make the client or the agency responsible for PAYE if the individual is inside IR35. Small-client rules (ITEPA 2003 s.60A) can put the responsibility back on the worker’s company. A substitution clause and a lack of control help the status analysis; they are not a spell. See /guides/ir35-contract-clauses-checklist-uk.

Who should sign?

The legal person who is contracting. A director signs for the company, in the company block. That does not make the director a personal guarantee. A sole trader signs in their own name. Do not let a company number sit next to a personal signature with no “for and on behalf of”.

Which is better for the other side?

A company gives the client a separate balance sheet and, often, VAT. It also gives them a thinner target if the company has no assets — which is why some clients ask for a guarantee. A sole trader is simpler and personally on the hook. Neither choice fixes a missing liability cap.

A worked example

Sam has billed as a sole trader for two years. She incorporates Harbour Studio Ltd and sends a new invoice. The live services agreement still names Sam. The client agrees a one-page novation: from 1 July the company performs, is owed the unpaid invoices, and Sam is released. The director’s signature is for the company. No personal guarantee is given. The IR35 status of the working practices is reviewed; it does not change just because a company number appeared.

How it shows up in a contract

Sample wording · our own drafting

The Supplier is [name], a sole trader / [name] Ltd, company number [number]. A change of the Supplier from an individual to a company, or the other way, is not effective until the parties sign a novation. A director's signature on behalf of a company is not a personal guarantee.

In Plain English

We are contracting with the named person or the named company. Switching from one to the other needs a novation everyone signs. A director who signs for the company is not personally on the hook.

Common mistakes

  • Changing the letterhead and assuming the contract moved.
  • Thinking a company wrapper removes IR35 by itself.
  • Treating a director’s company signature as a personal guarantee.
  • Leaving “Harbour Studio” with no legal person behind it.

What the legislation says

  • From 6 April 2021, where services are provided through an intermediary to a public authority or a medium or large client with a UK connection, the client must give a status determination statement that states its conclusion on whether the worker would be an employee if engaged directly, explains the reasons, and is reached with reasonable care (ITEPA 2003 ss.61K, 61N, 61NA).

    Source: Income Tax (Earnings and Pensions) Act 2003, ss.61K, 61N and 61NAChecked 28 October 2026Pending lawyer review

  • Chapter 8 of ITEPA 2003 applies where services are provided through an intermediary to a person who is not a public authority and who qualifies as small for the tax year. A company qualifies as small for a tax year if the small companies regime in the Companies Act 2006 applies to its last financial year that is relevant to that tax year (s.60A).

    Source: Income Tax (Earnings and Pensions) Act 2003, ss.48 and 60AChecked 28 October 2026Pending lawyer review

Sources

Frequently asked questions

What is the difference when contracting as a sole trader or a limited company?

A sole trader is personally liable. A company is a separate person; the company is liable unless someone has given a guarantee.

Do I need to novate if I incorporate?

Yes, if the live paper is in your personal name. A new invoice footer is not a novation. See /glossary/novation.

Does a limited company remove IR35?

No. Off-payroll working can still apply to a personal service company. Chapter 10 ITEPA 2003 is the statute.

Who should sign?

The legal person who is contracting. A director signs for the company, not as a guarantor, unless a separate guarantee says so. See /glossary/.

Related

The legal wording governsLast reviewed 28 October 2026Pending lawyer review