This sole trader vs limited company calculator shows whether you will pay less tax as either a sole trader vs limited company.

The sole trader vs limited company tax calculator is below. Just complete the first 3 boxes, then go down and click calculate my tax. But first, remember there are factors other than tax to consider when comparing a sole trader vs limited company. Some of these factors are listed below.

New Dividend Tax Calculator for Sole Trader vs Limited Company

This sole trader vs limited company tax calculator now includes the new dividend tax rates which started in April 2016. This slightly reduces the tax savings made by incorporating, but you still save tax trading as a limited company, until profits are very high.

sole trader vs limited company

Sole Trader

This is the simplest form of business to start. You simply carry on business on your own account. You are liable to income tax and Class 4 National Insurance on your profits. You can employ people including your spouse, as long as you pay them only for the value of the work they actually perform.

Partnership

A partnership is two or more people carrying on business together with a view to making a profit. Although partnerships can also be formed between companies, or between an individual and a company.

The partners in a general partnership are all joint and severally liable for partnership debts. However, this does not apply to personal tax bills based on partnership profits.

It is advisable to have a partnership agreement to document the business arrangement between the partners. This would include how you share profits and how partners will join and leave the partnership. Even a husband and wife partnership should have a written partnership agreement. You can use this to show HMRC that both parties are actively involved in the business and have a right to share the profits.

Limited Company

A limited company is a separate legal entity from its owners. These are the basic facts…

  • The limited company owns the business, not you.
  • The company must have at least one shareholder.
  • Also, it must have at least one director. But, there is no longer a requirement for private companies to have a company secretary.
  • The shareholders do not have to be directors, but often are in small companies. A company must treat directors as employees of the company, but they do not have to draw a salary form the company.
  • If you are the only shareholder, you will have sole ownership of the company.
  • The company pays corporation tax on its profits after salaries but before dividends.
  • Company Law governs a company.

 

Main disadvantages of trading as a Sole Trader vs Limited Company…

    • A sole trader is just an individual in business. Limited Companies may appear more credible and substantial although in reality, this is not necessarily the case.
    • Sole traders are individually liable for the business for an unlimited amount. A limited company’s shareholder’s liability is limited to the amount of the share capital invested. So it offers protection to the shareholders’ personal assets. In the event of company failure and not being able to pay its creditors, a limited company protects your personal assets. However, banks, landlords and others will often require personal guarantees from the shareholders or directors when dealing with small limited companies.
    • A Limited Company has better borrowing potential than a sole trader. That’s because it can use current assets as security by creating a floating charge over its assets.
    • It’s more difficult to share or hand over a sole trader business with other people. Different people can hold different proportions of shares in a limited company. This means you can easily pass shares onto the next generation. Also, you can pay different amounts of dividends to different shareholders

More disadvantages of trading as a Sole Trader vs Limited Company…

  • A sole trader owns all of the business. In a company, you can have different classes of shares with different rights. Such as non-voting shares for someone who wants to invest some money into the company but doesn’t wish to take part in the management.
  • Having a limited company can create significant tax advantages. That’s because it pays tax on its profit at just 20%. These are a lot lower than the higher rates of personal tax (40%). However, when the funds are extracted from the company extra tax or national insurance charges may arise.
  • If a sole trader leaves profit in the business there is no tax advantage – he/she is still fully taxed on all of the profit made. One can leave profit in a limited company by paying less dividends or salaries which will save the owner tax.

 
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Main advantages of using a Sole Trader vs Limited Company…

  • Accounts are optional for a sole trader. Although you may need accounts for mortgages etc. A limited company must prepare annual accounts which have to be filed at Companies House. These are available for public inspection as is other information about the company.
  • A sole trader does not have to comply with Company Law. Directors are personally subject to company regulations and can be fined or found guilty of a criminal offence for failing to comply.
  • Sole traders can just cease trading and inform HMRC. It’s more complicated to wind up a company.
  • You usually pay slightly less accountancy fees as a sole trader. A limited company generally involves higher accountancy fees as there is paper work to deal with.
  • Sole traders can offset losses against other income to save tax e.g. employment income. You can’t offset a limited company’s losses against the owner’s other income. But you can offset the losses against future or past profits to save tax.

 

We can help you

Remember there are factors other than a Sole Trader vs Limited Company tax calculator to consider. This calculator now includes the new dividend tax rates which started in April 2016. Ask us for further advice on whether you should trade as a sole trader vs limited company.

We offer a free company incorporation service for all of our clients including new ones. Our accountancy fees are from £50pm for companies.

Sole Trader vs Limited Company Tax calculator

Click here for our Sole Trader vs Limited Company Tax Calculator
Just complete the first 3 boxes, or just the first box if you’re a sole trader, then go down and click calculate my tax.

Would you like to register as a limited company?

Talk to us. We’ll help you consider the other factors not just the result of the sole trader vs limited company tax calculator. We’ll advise you on whether you should trade as a sole trader vs limited company.

Once you’re ready to choose between a sole trader vs limited company, contact us to enquire about our services or see our accountancy services from £50pm for companies. Or go straight to our free new company registration form – we don’t charge to register your new company, but there’s a £15 fee payable to Companies House and you have to start paying us towards your company accounts.

Do you want to remain or be a sole trader?

We can help you too. Our sole trader services start from £30pm including accounts, tax return and reviews. Or if you do your own accounts we can do the tax return for you from £100pa.

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