Sole Trader to Limited Company?

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Sole Trader to Limited Company?

“I’m a sole trader but would I be better off creating a Limited Company?”

I get asked this fairly regularly. And what’s the answer? Quite possibly yes but it’s not for everyone.

No, that’s not the end of the blog. I’ll explain a little further.

As someone who is self-employed, whatever you pay yourself is not part of the cost of running the business, for tax purposes. Well, if it was, then you could pay yourself all the profits and never pay any tax! You could, however, set up a Limited Company online for £12, be the sole Director and Shareholder and start trading as a Limited Company that day. You could pay yourself a basic salary such that you would pay no income tax or national insurance, or a higher amount to pay national insurance but no income tax, if you wanted. You could then pay yourself dividends (Dividends can’t be greater than Profits minus Corporation Tax though)

A few numbers to bear in mind;

The first £5,000 of dividends are tax free and then 7.5% thereafter up to £32,000.

Corporation Tax is 20% on profits but the cost of your salary, pension, healthcare for example are all allowable costs before Corporation tax is charged.

And yes, it’s not always that clear cut and yes there are additional costs and responsibilities that come with a Limited Company but I have recently recommended to 3 clients that they create Limited Companies because they will be financially better off if they do.

If you think creating a Limited Company might be for you, get in touch for a free chat.


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01922 430997
07985 645087

nic@taofinancial.com

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