Should you set up as a sole trader or a limited company?
Once you’ve been trading a while should you remain as a sole trader or should you go limited?
I have been asked this so many times I thought it would be useful to write a few words…
Advantage of limited company
Can take dividends out of a profitable company – dividends taxed at 10% up to higher threshold – 32.5% above this up to £150k then 42.5%
Sole trader taxed at 20% on all income up to higher threshold – 40% above this up to £150k then 50%
If the income taken out of a company is going to be higher than the higher threshold then money can be left in the company and suffer corporation tax at 20%
A sole trader would have to pay tax at 40% on anything above the higher threshold.
Benefit of a sole trader
If losses are made: they can be offset against other income – interest, dividend, employment, rental income etc
Limited companies can’t offset losses against personal income
Previously there has been an idea that a company comes over as more credible and professional but in reality it is so easy to liquidate a company that people don’t feel any more secure trading with them than a sole trader.
SEE TABLE BELOW
Hopefully this has explained some of the differences but if you feel that a discussion of your individual circumstances would help then contact me on 07711805183 or by e mail email@example.com
Member since: 11th June 2012
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