Pros and Cons of forming a Limited Company in the UK
 

If you are a Sole Trader in the UK you have the option of forming a Limited Company. This can have tax advantages - significant ones; although these will be eroded by the initial cost of setting up the company and the on-going increased accountancy fees. Also, the bookwork is greater and you need a trusted partner to be Company Secretary. All the advantages of Limited Liability are there, giving the protection outlined in the postings above, but all that is no substitute for good Third Party Liability Insurance. The situation is fluid as the Inland Revenue lost an important case recently (it went as high as the Law Lords) where a small company was accused of exploiting the advantages of Company Law to avoid/evade (not sure which) Income Tax. Having lost, the Revenue is nursing its grudge, and so is the Treasury. Expect new laws soon to plug the loop hole.

'Less than an Art, more than a Trade'

My accountant advised me AGAINST incorporating as most contracts for purchase or service now contain a proviso holding you PERSONALLY responsible, contrary to the "historic" protections that incorporating has provided. She believes the benefits are outweighed by the costs and "hassles" of filing both corporate and personal income tax, at least in my situation.

Again, keep in mind I'm in Canada and this is the OPINION of my accountant. Your mileage may vary.