KiQi House, 1 Trinity Street, Hanley, Stoke-on-Trent, ST1 5SL, UK
Opening HoursMon - Fri: 11.00 am - 6.00 pm
KiQi House, 1 Trinity Street, Hanley, Stoke-on-Trent, ST1 5SL, UK
Opening Hours Mon - Fri: 11.00 am - 6.00 pm

Self Employment Vs Limited Company

Minimising the overall tax is a key aim for all businesses.

Despite the Government’s  attempts to increase the corporation tax assessed on small limited companies, the tax benefits of trading through a limited company still remain attractive for businesses with modest profits.

The basis of taxing small company profits over 2009/2010:

1 Apr 2009 to 31 Mar 2010 – Profits up to £300,000 taxed @ 21%

Annual Profits
£15,000
£30,000
£60,000
£100,000
Sole Trader
National Insurance
– Class 2
125
125
125
125
– Class 4
743
1,943
3,214
3,614
Income Tax
– 0%
0
0
0
0
– 20%
1,705
4,705
7,480
7,480
– 40%
6,450
22,450
total
£2,573
£6,773
£17,269
£33,669
Limited Company
Corporation Tax
– 21%
1,950
5,100
11,400
19,800
Income Tax
– 40%
2,129
9,959
total
£1,950
£5,100
£13,529
£29,759
potential tax saving:
£623
£1,673
£3,740
£3,910

Remeber:

In the above comparison it is assumed company profits are extracted first by a salary of £5,715, with the remainder drawn as dividends from single company and  proprietor receives no other taxable income.

As well as the amount of direct taxation due on profits, businesses should consider a number of further issues before deciding which of the two trading mediums is most appropriate:

If minimising the taxation on profits is a key concern, and these profits are modest, trading as a private limited company, as opposed to being a sole trader or partnership, is still an attractive option.

The decision of which trading medium to trade through should be based on many factors, and will usually require professional guidance.

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