Ltd company v sole trader

With the change in the Corporation Tax rate to 19% from 1/4/17, and the dividend tax allowance of £5,000 in 2017/18, reducing to £2,000 from 2018/19 the tax savings of having an incorporated company as opposed to being a sole trader are shown in the figures below.

The assumptions I have made are:

– for the company a salary equal to the National Insurance primary earnings threshold is paid
– all of the post tax profit is paid as a dividend
– the tax and class 4 NI thresholds used are the 2017/18 figures for all the years.

2017/18
Tax Liabilities
Profit ——- Sole Trader —— Company —— Savings
£20,000 ——- £2,913 ————- £2,343 ——— £570
£30,000 —— £5,813 ————- £4,850 ——— £963
£40,000 —— £8,713 ————- £7,358 ——— £1,355
£50,000 —— £12,263 ———— £9,865 ——— £2,398
£75,000 —— £22,763 ———— £20,459 ——– £2,304
£100,000 —– £33,263 ————- £31,790 ——- £1,473

2018/19 and 2019/20
Tax Liabilities
Profit Sole Trader Company Savings
£20,000 ——- £2,765 ————- £2,568 ——— £191
£30,000 —— £5,665 ————- £5,075 ——— £590
£40,000 —— £8,565 ————- £7,583 ——— £932
£50,000 —— £12,115 ———— £10,090 ——– £2,025
£75,000 —— £22,615 ———— £20,684 ——– £1,931
£100,000 —– £33,115 ————- £32,015 ——- £1,100

Of course there are other factors which you must take into account when making the decision to incorporate or not, such as the higher administrative and accountancy costs.

Speak to your accountant before switching or before you start your business if you are a new business.