Accountants for Limited Companies & Sole Traders in Milton Keynes
As a firm of accountants for limited companies and sole traders in Milton Keynes, over the years we have seen lots of different tax scenarios faced by both limited companies and sole traders.
Previously it was generally a given thing that operating through a limited company would be far more ax efficient for most businesses. However, with the changing tax laws this may not be the case for everyone.
Being expert chartered accountants for limited companies and sole traders in Milton Keynes, we would be happy to discuss your specific situation and advise which way of operating your business would be most tax efficient and beneficial – please contact us to arrange a consultation.
Limited Company V Sole Trader - the differences in tax
There was a time when operating as a limited company was beneficial from a tax perspective. However, looking at the way dividends are taxed this may not be a viable option for some.
Limited company accounts work by recognising all the income that the company has made through trading in its profit and loss account. All expenses that were incurred wholly, exclusively and necessarily in the course of the business are deducted from the income to derive a profit figure.
Directors can take a salary out of the company, an amount which does not attract further income tax and in some cases national insurance. So for instance a figure of £11,850 or £8,464.
The profit is subject to corporation tax being charged at a rate of 19%.
Any profits that remain after tax can be withdrawn by the director by way of dividends.
Up until now the company has paid 19% corporation tax on its profits.
The director will be subject to income tax on the dividend. The way that dividends are taxed are as follows;
The first £2000 is taxed at 0% and therefore there is no tax to pay
The remainder up to the base rate of £34,500 is taxed at 7.5% and amounts above the base rate are subject to taxes at 32.5%.
Therefore, the director has paid tax at 19% on the profits and 7.5% on the dividends presuming it is up to the base rate.
A sole trader, however, is subject to income tax of 20% up to the base rate and national insurance at 9%.
To decide whether to operate as a limited company or sole trader it is important to ascertain whether or not you will be a higher rate tax payer I.e. whether your dividend will be more than the base rate when taking into account any salary.
As we are expert chartered accountants for limited companies and sole traders in Milton Keynes, if you want us to look at the circumstances surrounding your case and advise as to which option is best then please do not hesitate to get in touch on 01908 646100. Alternatively you can email us at email@example.com or use our contact form.