Tax Comparison: Self-employed Vs Ltd Company

We have written many blogs explaining the benefits of being a sole trader and the benefits of being a limited company. The business structure you choose depends on your own personal circumstances and your business goals.

It is useful however to appreciate the differences in outcome in tax terms, as this helps you to understand how your company structure impacts your end of the year tax bill.

The table below illustrates the projected profit for the best and worst years. The figures are the same for both the Non-Incorporated (self-employed) business and a Limited Company.

For a non-incorporated business, the tax is calculated based on the profit and need to pay Class 2 and Class 4 NI contributions.

For a limited company, you can draw a salary and the tax is based on your dividends as opposed to the overall profit made by the business. Generally, no National Insurance is due as a salary needs only be taken up to the NI threshold.

The outcome of this analysis shows that if the best year profit was £45,715 then a tax saving of £959 would be made if you were a limited company, rather than being self-employed. In the worst year when a profit of £22,000 was made you would still make a tax saving of £242 as a limited company.

It’s important to remember that you can switch from being a non-incorporated business to a limited company at any time. If you would like to do some analysis on your own business to understand better how much tax you could save by becoming a limited company please do get in touch with us by calling 01623 490 120 or email This email address is being protected from spambots. You need JavaScript enabled to view it..