In some sectors, such as IT contractors, it is hard to obtain contracts unless you trade through a limited company. The reasons for this are not always obvious; it is just the way things are. If you are taking risks such as in ordering large stock for an order that could be cancelled, then there can be a real benefit in the limited liability offered by trading as a company. Your own possessions are generally protected from any claim made against the company. However, in many situations, taking out a good insurance policy is all you need.
Perhaps most significantly though, a company structure makes it easier to involve outside investors in the company. Any business seeking to involve new investors will find it easier to structure the business by issuing or selling shares rather than complicated partnership agreements.
There can be tax advantages in trading through a company as there is also more flexibility in handling the owner's remuneration in such a way as to minimise the tax liability. Limited Companies are taxed on their trading profits, in addition to other sources of income such as interest and rent, and corporation tax is assessed after any owner's salary has been deducted. It is possible therefore to adjust the amount taken from the company in any one tax year, as well as the way in which it is taken out. Some profits can be retained in the company if the owner would otherwise be likely to pay higher rate tax personally.
For sole traders all income is taxable on their business profits, in addition to any other sources of income. There is little or no flexibility for deferring some of those profits to another year if you happen to have a particularly good year and are taxed at the higher rate. An additional advantage of a company is that shareholders can take profits as dividends which do not attract National Insurance Contributions. It may not sound exciting but significant savings can be made by an appropriate remuneration strategy.
The company will be regulated by Companies House, which has strict rules for reporting trading accounts and for the conduct of directors and other company officials. You will need to be satisfied that you can manage the additional administrative burden. You can always start as a sole trader and later incorporate. In fact, this is a common route when a new business is unsure of how large it will grow and whether the savings will outweigh the costs. It may be that there is also a potential tax saving on incorporating the company but this will depend on whether there is any realistic goodwill in the business.
To consider this and other issues properly, you will need to consult a professional advisor. Incorporating tends to be a decision business owners make a few times at most over a lifetime, and it makes sense to consult an experienced expert before acting.