Moore's Chartered Management Accountants
Discreet, confidential and convenient.
Robert Moore BA(Hons), ACMA, CGMA.
Limited Company or sole trader - which is best for me?
What's the difference?
Well they are taxed differently, for one thing.
If you are self employed your business profits and other personal income is taxed via the annual self assessment process. You cannot defer profits to future years.
For 2019/20 you can earn up to £11, 850 before you pay tax. You pay income tax at 10, 20, 40 or 45%, depending on your profit. In addition you must pay National Insurance Contributions on your profits.
Limited companies are liable for corporation tax on their business profits. The current rate is 19% on profits up to £300,000. Unlike the sole trader, the limited company can retain profits and distribute them, as dividends, in future years.
By paying a salary up to the personal allowance, and any additional monies required in dividends, both tax and NI can be saved. As we say in our Success Stories, on pre tax profit of £41, 055, a saving of £1144.55 can be made by trading as a limited company.
Furthermore, Limited company assets are distinct from personal assets. If you trade as a sole trader all your personal assets are available to creditors, should the business fail. That means your house, if you own one.