Self Employed vs Limited Company

Self Employed vs Limited Company
Setting up as a sole trader is the simplest way to start a business. You only need to inform HMRC that you are working as ‘self-employed’, and account for your business activities through the annual self assessment tax process. Starting up in business as a limited company is a more complex process, and the financial and administrative responsibilities of running a limited company are certainly greater than those of a sole trader. But, there are many benefits which a limited company has over the self-employed or sole trader.
  • The main advantage of having a company is the saving of tax payment. Being the director and shareholder of a limited company, you may choose to take a small salary and get other of your income in the form of dividends. In this way, you can minimize the amount of National Insurance Contributions (NICs) you have to pay because dividends are taxed separately, and are not subject to NICs.

In the case of a sole trader, your entire income is subject to NIC rules. Hence, business in the form of a limited company can help you to get home more of your earnings.

Annual Earnings Total tax if trading with Ltd Co Tax & NI sole trader Saving
£20,000.00 £2,900 £4,400 £1,500
£30,000.00 £4,800 £7,400 £2,600
£40,000.00 £6,700 £10,500 £3,800
£50,000.00 £10,700 £14,600 £3,900
£60,000.00 £14,700 £18,700 £4,000
£70,000.00 £18,600 £22,800 £4,200
£80,000.00 £22,500 £26,900 £4,400
£90,000.00 £26,400 £31,000 £4,600
£100,000.00 £30,400 £35,100 £4,700

 

  • The level of admin needed in self-employment is minimal as you have to file only a tax return once a year. But in a limited company, there is a lot of admin work to do, i.e. submitting annual tax returns, annual accounts, annual return, record keeping, etc.
  • Generally, accountants charge more fees to company matters as there is more work to deal with as compared to Self employment work.
  • As a limited company and its owner are two separate identities legally, you will not be personally liable in case of any financial loss
  • A limited company can be easily sold by transferring shares, but this is not with the sole trader.

 

We understand that it may not be a simple decision while choosing between Limited Company and Self Employment, therefore we offer a free initial consultation and help you chose a structure that is right for you. Our offices are in Mitcham and Redhill, London and the entire south of London is easily accessible; if you’re keeping very busy do not worry! One of our business managers can come to meet you at your location. Thereafter we use various means to ensure that we work closely with all of our clients.

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