Did you know?
You can increase you income by 10% if you register for VAT & further 10% increase if you register a Company.
Get 20% extra cash without doing any extra work.
We will take care of all the paperwork – just sit and enjoy extra CASH coming into your bank account!
Contact us, request a call back or speak with us online if you have got any questions.
How it works?
If you are self-employed with net profit equal or higher than £20,000, you end up paying twice as much taxes as you would pay, if you were to incorporate your business (i.e. form a Limited Company)!
Here are simply illustrations of the differences in tax regime between self employed and limited companies:
Taxation of limited companies
Under the company tax system companies pay tax of 20% on profits up to £300,000 a year, a company’s post-tax profit can then be paid to its shareholders as a dividend which is free of further tax whilst the shareholder’s gross annual income remains below £41,866. After this a higher rate charge equivalent to 25% applies to the amount of income exceeding £41,866. Let’s consider a company with an annual profit of £
| Income after allowable expenses | £50,000 |
| Less: Salary to owner/director | £7,950 |
| Net profit subject to tax | £42,050 |
| Less: Corporation tax payable | £8,410 |
| Net profit that can be paid to the shareholder as a dividend | £33,640 |
| Salary that is paid tax free (covered by personal allowances) | £7,950 |
| Take-home pay | £41,590 |
| Percentage of net income to gross income | 83% |
Taxation of self employed and partnerships
Sole traders (self employed) and partners pay Income Tax of 20% and Class 4 National Insurance of up to 9% on profits between £153 and £805 per week. Again where gross income exceeds £41,865 per annum a higher rate charge equivalent to a further 20% applies and a flat rate Class 4 National Insurance charge is made of 2% of income exceeding £805 per week. Let’s consider a sole trader or a partner with a profit of £50,000
| Income after allowable expenses | £50,000 |
| Less: income tax | £9,627 |
| Class 2 Nat Ins -£2.75 pw | £143 |
| Class 4 Nat Ins – Standard | £3,052 |
| Class 4 Nat Ins – Higher | £163 |
| Total tax and National insurance | £12,985 |
| Take-home pay | £37,015 |
| Percentage of net income to gross income | 74% |
So in this example the limited company structure gives a tax saving of £4,575 and increases take-home pay by over £381 per month.
The examples above all assume that the sole trader or director/shareholder has no other income. If you do have other income such as a pension, a second job or a rental property then it is likely that the impact on both the limited company and sole trade model with be broadly the same. This means that the general rule of thumb that operating via a limited company should save you tax will hold true.
Additionally, it could be sensible to pay your spouse, partner or other family members a wage from your business or indeed you might want to let them have a shareholding in your company.
How to become a limited company
Table below demonstrates exactly how much extra CASH you will have once you register a limited company:
| Gross Annual Salary | Tax paid as Self employed | Tax paid as Company | Extra CASH home |
| £20,000 | £3,227 | £2,410 | £817 |
| £25,000 | £4,677 | £3,410 | £1,267 |
| £30,000 | £6,127 | £4,410 | £1,717 |
| £35,000 | £7,577 | £5,410 | £2,167 |
| £40,000 | £9,027 | £6,410 | £2,617 |
| £45,000 | £11,104 | £7,410 | £3,694 |
| £50,000 | £12,985 | £8,410 | £4,575 |
| £55,000 | £15,085 | £9,410 | £5,675 |