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.

Leave a Reply

Your email address will not be published.