How much tax will I save as a limited company vs Sole Trader?

One of the questions we get asked all the time is "Should I go limited?".

However, what clients really mean is "Can I save tax by going limited?".

Well, the financial benefits of trading through a limited company structure are nowhere near what they were before the recent changes to the way dividends are taxed.

And the answer to the tax saving question isn't always straight-forward as it depends on a number of variables.

But we can give you an indication of the tax savings if we make the following assumptions:

  • Salary taken at NI Primary Threshold - you can see why this is a good idea here
  • Full personal allowance - £11,000 for 2016/17
  • All profit after tax is taken as dividends
  • Figures are rounded to the nearest £10 and taxes include Class 2 and Class 4 NICs

Given these assumptions, the estimated tax savings for the 2016-17 tax year are shown below:

Now compare these with the estimated tax savings for the 2015-16 tax year (same assumptions as above):

So as you can see, the tax savings are nowhere near as large as they used to be.  That's not to say that trading as a limited company is no longer the right structure, however you may want to take into account more than just the tax savings.  You can see what other benefits there are to trading as a limited company here.

And if you'd like to talk to us about this, or any other issues, you can get in touch with us here.

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