UPDATE – Please read our article Sole Trader vs Limited Company 2016/17 which is more up to date than the article below



One of the most popular questions we get asked is ‘how much tax can I save by trading as a Limited Company‘ – as people’s businesses grow they want to know if they should they be trading as a Sole Trader or as a Limited Company.

The answer depends upon quite a few variables but in the case of an owner managed business with one shareholder/director using the 2013-14 tax rates the below table shows the tax savings that can be made compared to an equivalent taxable profit using a Sole Trader structure. This assumes the director is on a standard tax code with no other taxable income outside of the business and it assumes the director takes a basic salary of £7,696 and the balance in dividends.

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Typically we tend not to advise a Limited Company structure until profits are around the £30k+ level as there are other things to consider such as increased administration, tighter control on when and how you can draw money out of your company and increased accounting fees.

The savings come about largely due to the savings on national insurance which would need to be paid if you were a sole trader. You might want to have a read of our corporation tax guide.

We would always suggest it is worth discussing your position with us in more detail so we can advise you on the best business structure for your exact circumstances, if you would like to do this just get in touch with us here.

We have written up some brief pro’s and con’s of a Limited Company here.

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