3 Business Structures Compared:
Sole Trader
40-45% tax
Partnership
40-45% tax
Ltd Company
19-25% tax
Your eBay venture is taking off. What started as a side hustle is now generating real income. This is the perfect time to ask: is my business structured in the most tax-efficient way?
Choosing the right legal structure isn't just a box-ticking exercise. It has a significant impact on your tax bill, personal liability, and the administrative workload you'll face down the line.
Your business structure is the foundation upon which everything else is built. It directly affects:
The rates and types of tax differ significantly between structures
Are your personal assets, like your home, at risk if the business runs into debt?
Some structures require much more formal reporting to HMRC and Companies House
A limited company can appear more professional and find it easier to secure loans or investment
Getting this right from the start can save you a lot of money and potential headaches.
OPTION 1
This is the simplest and most common way to start a business in the UK. As a sole trader, you are the business. There is no legal distinction between you and your eBay enterprise.
Advantages
Disadvantages
Important Liability Warning:
You cannot avoid liabilities simply by saying the business is closed. Even after closure, you may still be liable for the company's debts and any outstanding tax.
As a sole trader, your eBay profits are simply added to your other income (like a salary from a job) and taxed as personal income.
For the 2025/26 tax year:
Once your total income exceeds £50,270, you'll pay 40% tax (and potentially 45%) on your earnings above this threshold.
OPTION 2
A partnership is similar to being a sole trader, but it involves two or more people. The partners share the profits, debts, and decision-making.
Advantages
Disadvantages
Profits are split between the partners according to your agreement. Each partner then pays tax on their share as an individual, exactly like a sole trader.
This means you face the same risk of hitting the 40% or 45% income tax bands as your business grows.
OPTION 3
A limited company is a completely separate legal entity from its owners (the shareholders). This is the most significant difference and provides key advantages, especially for tax.
Advantages
Considerations
Limited Liability Explained:
You can close the company, and as a general rule you will not be personally liable for the company's debts, taxes or other liabilities. The company is a separate legal entity.
Exception: Personal liability can arise in certain circumstances, for example where there has been wrongful trading, fraudulent trading, or where you have given a personal guarantee.
A limited company does not pay Income Tax. Instead, it pays Corporation Tax on its profits.
Profits up to £50,000
19%
Corporation Tax rate
Profits over £250,000
25%
Corporation Tax rate
There's a tapered relief for profits between £50,000 and £250,000
💡 Smart Tax Strategy
You can then pay yourself a combination of a small, tax-efficient salary and dividends.
This strategy is often far more tax-efficient than taking all your profit as a sole trader, especially if you're a higher-rate taxpayer.
There is no "one size fits all" answer, but we can look at two common scenarios:
Scenario A:
Starting as a sole trader is likely your best bet. It's low-cost, simple, and lets you focus on building your business without getting bogged down in administration.
You can always incorporate later as your profits grow.
Scenario B:
This is a critical tipping point. If your eBay income is stacked on top of an existing salary near or over £50,270, every extra pound earns at 40% or more.
Setting up a limited company is usually the most tax-efficient move. Save thousands in tax each year!
Think about where you want your eBay business to be in two, five, or even ten years. Choosing the right business structure from the start will save you stress and money, allowing your business to grow on a solid, tax-efficient foundation.
Whether you decide on a sole trader, partnership, or limited company, make sure your structure supports both your short-term needs and your long-term ambitions.
| Structure | Tax Type | Rate | Best For |
|---|---|---|---|
| Sole Trader | Income Tax | 40-45% | Testing, low income |
| Partnership | Income Tax | 40-45% | Multiple owners |
| Limited Company | Corporation Tax | 19-25% | Growing, higher earners |
Let's build the right foundation for your eBay business together. Contact Taxwise Accountancy today for a free, no-obligation consultation.
Expert eBay business planning • Tax efficiency • Structure advice