Sole trader or limited company for your Brighton e-commerce business? A straight answer

Brighton has a thriving e-commerce community — Etsy sellers, Shopify stores, Amazon FBA operations, and independent online brands. One question comes up constantly: should I be a sole trader or a limited company?

The honest answer is: it depends on your profit level. Here is the clear-cut guide.

The tax difference in plain terms

As a sole trader, you pay income tax and National Insurance on your profits directly. At the higher rate, that means around 42–47p in every pound of profit going to HMRC (income tax plus Class 4 NIC). As a limited company director/shareholder, you pay corporation tax on profits (currently 25% for profits over £50,000, 19% on smaller profits), then salary and dividends to extract money — with dividends taxed at lower rates than employment income.

What does running a limited company actually involve?

• Filing annual accounts with Companies House
• Filing a Corporation Tax return with HMRC
• Running a payroll (even a small one for your director salary)
• Maintaining proper bookkeeping records
• Potentially filing a Self Assessment return for your personal income

This is why your accountant fees increase when you incorporate. There is genuinely more work involved. For a profitable business, the tax saving more than covers the additional cost — but below a certain profit level, it does not.

E-commerce specific considerations

E-commerce businesses have some particular factors worth considering. Stock purchases, fulfilment costs, platform fees, and advertising spend are all allowable business expenses — and these can be significant. High expenses mean lower profit, which may push your crossover point higher. Run the numbers on your actual profit, not your turnover.

VAT is also a consideration. If your e-commerce turnover exceeds £90,000, you must register for VAT regardless of business structure. Selling through Amazon or other platforms has specific VAT rules — particularly for overseas sellers using UK fulfilment centres.

The Brighton e-commerce scene

Many Brighton e-commerce businesses start as sole traders on platforms like Etsy or Depop and grow into full-scale Shopify operations. The point at which to incorporate varies, but reviewing your structure every year is sensible. Fitzpatrick Co works with Brighton e-commerce businesses at every stage.

A word on timing

Incorporating partway through a tax year creates complications — two sets of accounts, potential overlap of tax periods. If you are thinking about incorporating, the cleanest time to do it is at the start of a new tax year (6 April) or when starting a new business. Your accountant should advise on timing specific to your situation.