Sole Trader vs. Limited Company: Which is the Best Business Structure for Amazon Sellers?

Published by Farazia Gillani posted in Business Structure on 30 October 2025

As an Amazon seller in the UK, one of the most important decisions you’ll face is choosing your business structure. Should you operate as a sole trader or set up a limited company? This decision affects your taxes, personal liability, and the overall administration of your business. In this article, we break down the key differences between these two structures, helping you determine the best business structure for Amazon sellers based on your goals.

Sole Trader: The Simple and Quick Option

A sole trader is the simplest and most common business structure for Amazon sellers. As a sole trader, you’re the sole owner of the business and are personally responsible for its profits and debts.

Key Features of this Business Type for Amazon Sellers:

Simple Setup: Register with HMRC as self-employed, and you’re good to go.
Full Control: You make all the decisions and keep 100% of the profits.
Tax Returns: You’ll need to submit an annual Self Assessment tax return.
Minimal Costs: The costs of setting up and running the business are low.

Pros for Amazon Sellers:

Low Overhead: No need to file complex annual accounts or manage extra paperwork.
Easy Setup: You can start selling on Amazon immediately with minimal red tape.
Full Profit Ownership: All profits from your Amazon sales are yours to keep.

Cons for Amazon Sellers:

Unlimited Liability: If your Amazon business runs into debt or legal issues, your personal assets (home, savings) are at risk.
Higher Taxes: As your profits grow, you’ll pay Income Tax at higher rates, which can be more expensive than Corporation Tax for limited companies.
Limited Growth Opportunities: Investors may prefer the stability and credibility of a limited company if you’re looking to scale your Amazon business.

Limited Company: The Professional and Scalable Option

A limited company is a separate legal entity from its owner(s), meaning your business and personal finances are legally distinct. Setting up a limited company as an Amazon seller requires more paperwork and is more costly to manage, but it offers advantages in terms of tax efficiency and personal protection.

Key Features of this Business Type for Amazon Sellers:

Separate Legal Entity: Your personal assets are protected, and you aren’t personally liable for the company’s debts.
More Complex Setup: You must register with Companies House and comply with more regulations.
Ongoing Compliance: Submit annual accounts, a confirmation statement, and Corporation Tax returns.
Tax Flexibility: Pay yourself through a salary and dividends, which can be more tax-efficient than Income Tax.

Pros for Amazon Sellers:

Limited Liability: Your personal assets are protected if the business faces financial problems or legal issues.
Tax Efficiency: Limited companies benefit from Corporation Tax at 19%, which is often lower than the Income Tax rates for higher profits. You can also optimise your tax by paying yourself a salary and dividends.
Better for Scaling: If you plan to grow your Amazon business and attract investors or partners, a limited company is often more appealing. It adds credibility and allows you to raise capital more easily.

Cons for Amazon Sellers:

Higher Setup and Maintenance Costs: You’ll need to pay for registration with Companies House and keep more detailed financial records. Annual filing of accounts and confirmation statements is required.
More Paperwork: Managing a limited company involves more paperwork than being a sole trader, including submitting financial statements and dealing with payroll if you have employees.
Dividends Tax: While dividends are taxed at a lower rate than salaries, the amount you can take out as dividends is subject to certain rules and taxes.

Tax Implications for Amazon Sellers: Sole Trader vs. Limited Company

Sole Trader Taxes:

Income Tax: As a sole trader, you pay tax on your profits, which are taxed at personal Income Tax rates:
- £12,570 to £50,270: 20%
- £50,271 to £150,000: 40%
- Above £150,000: 45%
National Insurance Contributions (NICs):
- Class 2: £3.15 per week (if profits exceed £6,725).
- Class 4: 6% on profits between £12,570 and £50,270; 2% above £50,270.
VAT: If your turnover exceeds £90,000, you’ll need to register for VAT and file quarterly VAT returns.

Limited Company Taxes:

Corporation Tax: Limited companies pay Corporation Tax on their profits. The rate is 19% for profits up to £50,000 (small profits rate). For profits above £250,000, the rate is 25% (main rate). For profits between £50,000 and £250,000, Marginal Relief applies, gradually increasing the tax rate between 19% and 25%.
Director’s Salary: Directors can pay themselves a salary subject to Income Tax and National Insurance Contributions (NICs). Employer NICs have increased to 15%, and the employer NIC threshold has dropped to £5,000, which affects costs. Tax-efficient salary levels are usually between £5,000 and £12,570 depending on circumstances.
Dividends: Dividends are paid from profits after Corporation Tax. Dividend tax rates are 8.75% for basic rate taxpayers, 33.75% for higher rate, and 39.35% for additional rate taxpayers. The tax-free dividend allowance is reduced to £500 for 2025/26.
VAT: VAT registration becomes mandatory once the company’s taxable turnover exceeds £90,000, similar to sole traders.

Liability Protection: Sole Trader vs. Limited Company

Sole Trader:

Unlimited Liability: You are personally liable for the business’s debts. If your Amazon business incurs losses or faces legal action, your personal assets (home, car, savings) are at risk.

Limited Company:

Limited Liability: The company is a separate legal entity, meaning your personal assets are protected. The liability is generally limited to the amount you’ve invested in the business, making it a safer option as your business grows.

Administrative Requirements: Sole Trader vs. Limited Company

Sole Trader:

Registration: Simply register with HMRC as self-employed.
Tax Returns: File an annual Self Assessment tax return.
Records: Maintain financial records for your business income and expenses, which is a relatively straightforward process.

Limited Company:

Company Formation: Register with Companies House and appoint at least one director.
Annual Requirements: Submit annual accounts and a confirmation statement with Companies House.
Corporation Tax: File Corporation Tax returns and manage company finances.
Payroll: If you pay yourself a salary, you need to set up PAYE (Pay As You Earn) for tax and NICs.
Statutory Records: Keep detailed company records, including shareholder information and minutes of meetings.

When Should You Choose Each Business Type For Amazon Sellers?

Choose Sole Trader If:

You’re just starting out and want to test your Amazon business idea with minimal upfront costs.
You expect modest profits in the initial years and don’t want to deal with complex administrative tasks.
You want a simple setup with no need to worry about extensive reporting or financial statements.

Choose Limited Company If:

You plan to grow your Amazon business and want to benefit from tax efficiencies as your profits increase.
You want to protect your personal assets and limit your liability.
Seek more professional credibility, which can help attract investment and potential partners.
You intend to reinvest profits into the business or seek external funding.

How Apex Accountants Can Help You Choose the Right Business Structure Amazon Sellers

At Apex Accountants, we specialise in providing comprehensive business structure services for amazon businesses. Whether you’re a sole trader or running a limited company, we offer tailored solutions to help you optimise your business structure and manage your finances effectively.

Our Business Structure Services for Amazon Businesses include:

Business Structure Advice: We guide you in choosing the right business structure based on your goals and income.
Tax Planning & Advice: Expert advice on tax strategies to maximise your profits and minimise tax liabilities.
Company Formation: Assistance with setting up a limited company and meeting regulatory requirements.
VAT Registration & Filing: Helping you register for VAT and file your returns on time.
Bookkeeping & Accounting: Comprehensive bookkeeping services to ensure accurate financial records.
Payroll Services: Manage director’s salaries and employee payroll with full compliance.

Contact Us Today

If you’re ready to take the next step with your Amazon business or need help deciding between operating as a sole trader or forming a limited company, reach out to Apex Accountants. Our team of experts is here to provide you with the advice and support you need to grow and succeed.

Frequently Asked Questions

What’s the main difference between a sole trader and a limited company?

A sole trader has full control but personal liability, while a limited company protects personal assets and offers tax benefits.

How much tax do I pay as an Amazon seller?

As a sole trader, you pay Income Tax and National Insurance on your profits. Limited companies pay Corporation Tax and can take salaries and dividends.

Is a limited company better for growing my Amazon business?

Yes, as a limited company, you can benefit from tax efficiencies and limited liability, making it a better option for growth.

Can I switch from being a sole trader to a limited company?

Yes, many Amazon sellers start as sole traders and later switch to a limited company as their business grows.

Do I need an accountant if I’m a sole trader?

While not required, having an accountant can help you manage your tax returns and ensure you’re compliant with HMRC regulations.

What are the costs of running a limited company?

You’ll need to pay for company registration, annual filings, and accounting services, which can be more expensive than operating as a sole trader.

How do I register for VAT as an Amazon seller?

If your turnover exceeds £90,000, you must register for VAT with HMRC. We can help with registration and filing.

What are dividends and how are they taxed?

Dividends are payments made to shareholders from company profits and are taxed at lower rates than salaries.

Do You Have to Be a Registered Business to Sell on Amazon UK?

No, you do not need to be a registered business to sell on Amazon UK. You can sell as a sole trader, which means you can operate without formally registering your business. However, if your earnings exceed the personal allowance or if you plan to grow your business, it’s recommended to register with HMRC for tax purposes.