Starting out
Sole trader or limited company for plant hire?
Sole trader or limited company for a new plant hire business: liability, tax, finance, contracts and admin compared, and the steps to set up either.
Key takeaways
- Sole trader: simplest to start, but you are personally liable for business debts.
- Limited company: the company is liable, which matters when you finance plant and hire it out.
- Most plant hire firms become limited companies early because of asset finance, contracts and risk.
- Incorporating online costs £100, and directors must verify their identity with Companies House.
- Ask an accountant to compare the tax for your expected profit before deciding.
The short answer
If you're hiring out one or two machines you already own, starting as a sole trader is quick and cheap. If you're financing several machines, hiring to contractors on credit or employing people, a limited company is usually the better fit.
Side by side
| Sole trader | Limited company | |
|---|---|---|
| Personal liability | Unlimited: your own assets are at risk | Limited to the company, unless you give personal guarantees |
| Set-up | Register for Self Assessment with HMRC | Incorporate at Companies House (£100 online) |
| Tax on profits | Income Tax and Class 4 National Insurance | Corporation Tax (19%–25%), then tax on what you take out |
| Admin | Light: one tax return a year | Heavier: accounts, confirmation statement, company tax return, payroll |
| Privacy | Name and address stay private | Directors and accounts are on the public register |
| Credibility with contractors | Fine for small jobs | Often expected by larger customers |
| Selling the business later | Harder | Easier: sell the company or its shares |
Corporation Tax is 19% on profits up to £50,000 and 25% above £250,000, with marginal relief between. Check current rates on GOV.UK.
Liability and risk
Plant hire carries real risk: a machine can damage property, be stolen, or a large customer can fail to pay. As a sole trader those debts are yours personally. A limited company separates them, although lenders often ask directors of new companies for personal guarantees on finance, so the protection is never complete.
Tax
As a sole trader you pay Income Tax and Class 4 National Insurance on all profit, whether you take it out or not. A company pays Corporation Tax on profit, and you pay personal tax on salary and dividends you draw. Which works out cheaper depends on your profit, what you draw and your other income, and the rules change regularly, so get your accountant to run both.
VAT, PAYE and CIS apply in similar ways to both. See VAT, PAYE and CIS for plant hire.
Finance and contracts
- Most plant lenders deal with both, but limited companies can access a wider range of products.
- Larger contractors and housebuilders often prefer or require limited company suppliers.
- Trade credit and supplier accounts can be easier to open as a company.
How to set up each
Sole trader
- 01
Register for Self Assessment
With HMRC, once trading income goes over £1,000 a year.
- 02
Open a business bank account
Keep hire income and costs separate.
- 03
Set up bookkeeping
Track hire income, deposits, repairs, fuel and finance.
Limited company
- 01
Verify your identity
Every director must complete Companies House ID verification.
- 02
Incorporate
Choose a name, registered office, directors and shareholders; £100 online.
- 03
Register for Corporation Tax
Within three months of starting to trade.
- 04
Open a company bank account
In the company's name.
- 05
Set up payroll
Register as an employer before paying any salary, including your own.
Switching later
Many people start as sole traders and incorporate once the business grows. Moving machines and finance agreements into a new company can have tax and lender consequences, so plan the switch with your accountant and tell your finance companies before you do it.
FAQs
Common questions
Should a plant hire business be a limited company?
How much does it cost to set up a limited company?
Do I still need a personal guarantee if I'm a limited company?
Keep going
Related guides
VAT, PAYE and CIS for plant hire businesses
When to register, and how CIS treats operated and bare hire.
Read guide →
Plant hire business plan template and example
Template and worked example lenders and partners expect.
Read guide →
How to start a plant hire business in the UK
The full route from idea to first hire, in twelve stages.
Read guide →
Finance
Hire purchase, leases and refinance for new hire firms.
Read guide →
This guide is general information for people setting up a plant hire business in the UK. It is not legal, tax, insurance or financial advice. Rules and thresholds change, so check current guidance on GOV.UK and take advice from an accountant, solicitor or broker before acting.