Blog

Sole Trader vs Limited Company Tax Calculator & Incorporation Calculator

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.

 
SEE OUR FEESTAX HELPSHEETSFREE SOFTWARE
 
 

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.

FEE CALCULATORCONTACT FORMHOW IT WORKS

Fee Calculator

£0

£0
* Required

Fees exclude VAT

What our clients say about us

This is the first time I have used cloud based accounting. It has been a refreshing change. I found Paul to be extremely helpful in setting things up being a new user. Communication was done by email and i always received a response within a day. Very knowledgeable and excellent communication. And a fantastic bonus was that the service was 1/3 cheaper than what i was paying using a traditional accountant. I would without hesitation recommend Paul. Just brilliant.

see more

Iain CowardIain CowardBiggerbet Ltd

Paul did a great job with our accounts. He delivered on deadline with minimum hassle for us. He uses technology very well and this helps provide top-notch service.

see more

Martin KruusimägiMartin Kruusimägi
It has been great working with Paul. He is punctual and accurate, but I most appreciate the fact that I can go to him with any question, no matter how insignificant or elaborate. Thanks Paul, it's been a pleasure!"

see more

Steven TrotterSteven Trotter
Many thanks for a very fast and professional job and look forward to working with you again."

see more

Annie MulvanyAnnie MulvanyFreelance Show Caller

Paul was a delight to work with. Flexible, understanding and endlessly patient; I would recommend him in a heartbeat.

see more

Mike BellMike BellJourneys To Wellbeing Ltd
Paul Colman takes all the pressure off and lets us get on with our work by taking care of the little detail as well as the big picture."

see more

A CuryA CuryHouse of Greenland Ltd
Since the beginning of our start up and especially during busy and pressuring times, Paul has been by our side to help us dealing with accountancy. His patience with my lack of talent with numbers was amazing - I thank him for that and would recommend him in a heartbeat."

see more

L FergusonL FergusonPaul Ferguson Electrical Ltd
I really appreciate your help, I know we pay you but you have been worth every penny and I am truly thankful for your assistance!!"

see more

Gabrielle ShegogGabrielle ShegogSimple Software Solutions Ltd

Paul has been invaluable in providing accountancy services for my small business. As a small business owner, my time is valuable and so it's great having the piece of mind that I can rely on Paul to sort out my accounts for me. He is always prompt and clear in explaining anything I don't understand and I look forward to working with him well into the future.

see more

Jesús CarreraJesús CarreraBitien Ltd

It took me a while to find an accountant that understands the needs of the modern times. Paul is very good at using cloud systems that reduces unnecessary paperwork (specially in printed form), and accelerate communications. My accounting and bookkeeping is less annoying now. Thanks Paul.

see more

D McIvorD McIvorBeyond the Fridge (Frome) Ltd
We’ve been with Cloudbook Accountants for some time now and would highly recommend Paul Colman FCA to any business looking for a truly enlightened advocate of online accounting and integration to online services. Having experienced several accountancy firms during my career, both large and small, I can honestly say that Cloudbook’s holistic approach to our business is by comparison the most efficient and cost effective, something we’ve long been searching for!"

see more

Anthony PearceAnthony PearcePearce UK Consulting Ltd
Good accountant with proven electronic processes."

see more

Trevor HolmesTrevor HolmesPrecise Marketing Ltd
I have yet to meet someone as meticulous with numbers and calculations as Paul. An extremely personable individual who knows his work inside-out. He is highly self-motivated, independent and efficient – all the qualities that I look for in an accountant for my business. All of my accounting needs are immediately processed well ahead of schedule. Paul plays a pivotal role in all my financing activities, which allows me to successfully grow my company. He will be an asset to any company that decides to use his services and I recommend him completely for any accounting needs."

see more

Jhem MurrayJhem MurrayJeystone Media Ltd
We have used several accounting firms in the past and switched quite a few times, but since discovering Paul Colman FCA I can say with confidence that this is the level of service and value we have been looking for all along.

see more

Zafer SaygilierZafer SaygilierSayturk Ltd
I have been dealing with Paul for the past 2 years, he has been amazing sorting out my very complex and disorganised affairs in no time and has provided me with clear advice and solutions tailored to me and my operations . I would recommend him and his professional services to anyone without any hesitation."

see more

Save Tax!

Pay less tax completeSign up for monthly Tax Tips & News emails and receive this FREE GUIDE

*Email:
First name:
Last name:
© 2016 CloudBook Accountants Ltd | Registered in England and Wales 08966635 | Registered Office: 22 Bosworth Gardens, Newcastle Upon Tyne, NE6 5UN
Leave a message: 0191 4065 351 | Email: contact@cloud-book.co.uk | Twitter: @CloudAcountants