January 12, 2015 Sole Trader vs Limited Company I am a freelance web developer and currently operating as a self employed sole trader but am considering changing to a Limited Company. My annual turnover is about £40k and I have very little in the way of expenses. Can you advise as to whether a Limited Company would save me much in the way of tax? UPDATE 2019 : we have written a new article for the 19/20 tax year comparing sole traders to limited companies Changing your business to a limited company at a profitability level of £40,000 would certainly lead to tax / national insurance savings (see below). It would have the added incentive of your business having limited liability status which would mean, in most cases, any claims made against the company would be limited to assets owned by the company – as a sole trader any claims against your business are against you personally and your own assets. Based upon tax rates for 2014/15 with profits of £40,000 using the most tax efficient salary/dividend structure in the limited company the liabilities would be as outlined below. This assumes you have no other income outside of your business. As noted above the total saving for the tax year from trading as a limited company would be £2,782 based upon current tax rates. We would recommend you have a read of our guide on corporation tax which explains how tax works for limited companies. There is also an added cashflow benefit as the limited company’s corporation tax is payable once a year, 9 months and one day after the year end (for a company with a year end of 31 March 2015 – tax is payable 1 January 2016). For a company of this size there are no payments on account to be made during the period. As a sole-trader you pay the tax owed for the previous tax year by 31st January (for the tax year ending 5 April 2015 – tax is payable 31 January 2016), however as a sole trader you will have to pay payments on account, which in the first year of trade in the above example would mean a total tax bill on 31st January 2016 of over £13,000. You should also be aware of the key non-tax differences of a limited company.