Setting up a salon or looking at your current structure?
Choosing the Right Structure for Your Salon Business is crucial… but where do you start? This is where SOU can help..
Let’s break it down in simple salon terms:
If you’re setting up a salon or reviewing your business structure, one of the first big decisions you’ll face is whether to operate as a sole trader or a limited company. Each option has its pros and cons and the right choice depends on your goals, income, and long-term plans.
What is a Sole Trader?
A sole trader is a self-employed individual who owns and runs their business alone. Many salon owners start out this way.
✅ Advantages of Being a Sole Trader
- Less paperwork: You only need to complete a Self-Assessment tax return each year.
- Full control: Every decision is yours, no directors or shareholders involved.
- Keep your profits: After paying tax, everything left is yours.
- Low start-up costs: No registration with Companies House or incorporation fees.
- Privacy: Your financial records stay private, unlike limited companies, which must file public accounts.
- Personal connection: A personal brand can be powerful — especially if your clients like the “independent” feel of your salon or mobile service.
❌ Disadvantages of Being a Sole Trader
- No separation between you and the business: You’re personally responsible for all debts or losses. If your business owes money, your personal assets (like your home or savings) could be at risk.
- Harder to attract investment: Banks and investors are often cautious about lending to sole traders.
- Perception: Some clients and suppliers view limited companies as more professional or established.
- Higher personal tax: You pay income tax on all profits once you earn over the personal allowance (£12,570 for 2024/25).
What is a Limited Company?
A limited company is a separate legal entity from you. This means the business — not you personally is responsible for its debts. Many growing salons move to this structure once turnover and risk increase.
✅ Advantages of Being a Limited Company
- Limited liability: Your personal assets are protected if the company runs into financial trouble.
- Tax planning options: Limited companies pay corporation tax (currently 19%) on profits, which can be more efficient than paying higher-rate income tax as a sole trader.
- Claimable expenses: You can claim a wider range of business costs (such as pension contributions, travel, and equipment) before tax.
- Flexible income: You can pay yourself through a mix of salary and dividends, helping to reduce personal tax.
- Professional image: Many landlords, suppliers, and larger clients prefer working with limited companies.
- Easier to attract funding: Investors are more likely to invest in a registered company, and you can raise capital by selling shares.
- Name protection: Once registered, no one else can use your company name in the UK.
❌ Disadvantages of Being a Limited Company
- More admin: You’ll need to file annual accounts, corporation tax returns, and a confirmation statement. Many owners hire an accountant to handle this.
- Legal responsibilities: As a company director, you have legal duties — such as protecting company assets and acting responsibly if the business becomes insolvent.
- Less privacy: Your accounts and director details are available on public record.
- Tax rules on withdrawals: You can’t freely take money from the company bank account — only via salary, dividends, or reimbursed business expenses.
So… Which is Right for You?
Every salon is different. A smaller salon or start-up salon might prefer the simplicity of being a sole trader, while growing a salon business with staff and higher turnover may benefit from the protection and professionalism of a limited company.
Think about:
- Your current and expected income
- Whether you’ll employ staff
- Your level of risk (for example, high client volume or leases)
- Your growth plans and future funding needs
There’s no one-size-fits-all answer; it’s about choosing the model that best fits your goals and how you want to grow your business.
💡 Need a Little Help Deciding?
Inside Salon Owners United, our members get access to step-by-step business guides, expert insights, and ready-to-use templates designed to help you build a strong, compliant salon business from the start.
Whether you’re just starting out or ready to scale, we’ll help you understand your numbers, structure your business correctly, and plan for profit, without the jargon.
As a member, you can also access all of the resources you need to operate and grow your salon business.
JOIN our workshops where we will help you build on your knowledge, keep up to date with tax and legislation…
ACCESS 100+ documents, templates, guides and more…
NETWORK with 1000’s of other salon owners who just get it.
👉 Join Salon Owners United today and get the support you need to make the right choice for your salon’s future.
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