Most people who start a new business do so on a sole trader basis to find out if they can make a success of it before committing to the time and financial costs involved in the associated compliance burdens of a limited company. At higher profit levels, the tax and national insurance savings to be had by using a company can be significant and there is more flexibility on how much tax you pay personally through the efficient planning of salary and dividend drawings.
If you make a trading loss as a sole trader, in the early years it can be relieved against income from earlier years as you will see here.
Company losses can be carried back against previous profits of that business or carried forward to be offset against future profits only.
As a sole trader, if you made a profit of £30,000 and assuming you had no other income, you would pay income tax in 2014/15 of £4,000 and class 4 national insurance contributions of £1,984. You would also pay class 2 national insurance contributions of £2.75 per week.
A company would pay corporation tax at 20% on profits of £30,000 (£6,000 tax). However, if you paid yourself a salary of around £7,500, you would avoid personal tax, employee and employer national insurance contributions on the £7,500 and save £1,500 in corporation tax. You could draw the balance of the post tax profit in dividend form and pay no further tax. Read about dividends and tax here
Clearly, as profits rise, the tax and NIC savings increase as with careful planning, the director/shareholder may avoid paying higher rate personal tax. If you use an accountant, however the fees may be higher for a company than for a sole trader.
I hope this helps but let me know if you have any further questions.