Tax for self employed and for a limited company

shomk

Can anyone shed some light on what rate of tax I would be looking at if I went self employed or set up as a limited company? With the purpose of putting by provisions for tax I am confused as to how much. An article on this site suggests 35%.

Merlin_Accounts

Hi Shomk

As a self emplyed person you pay Class 2 national insurance, which is a fixed amount per tax year, being £2.30 per week during this tax year.

In addition to this you also pay income tax and class 4 national insurance (basically another name for income tax to all intents and purposes). In this tax year the rates are 20% & 8% respectively on profits between £5435 and £40040 per year. Any profits above this last amount are taxed at 41% (tax and national insurance).

Limited companies pay tax on any profits they make with no "tax free" break as such, and the rate is currently 21%. Depending on how you take profits out for yourself, and how much, you can actually limit the tax you and the company pay to this same 21%. You would not pay the Class 2 national insurance either.

There are lots of other things to consider before jumping in to being a Limited Company, so I always advise my clients these days that, unless they are wanting to be a Limited Company for a reason other than tax, they should not really consider it unless they are making £25k to £30k per year profits. You can still be better off tax wise on smaller profits than this but the additional hassles and costs involved with compliance rapidly devalue the amount saved.

I would suggest you talk to an accountant in your area - most these days offer free consultations.

shomk

Thats really helpful, thank you! I will see someone about it.

tlck9

By profit for self employed, I'm assuming this is whatever you take out of the business for wages and whatever profit the company has made at the end of the tax year

So effectively if the company has made approx £4000 profit and taken a salary of £10,000 for instance, then tax and national insurance would be around £2520

am I correctly working this out, as your total is going to be around £9k taxable

On a seperate note, does anyone know what the threshold is for VAT for self employed, for 2007 and 2008.

longforgotten

tick... you're mixing things up a bit.

What you are calling 'wages' are called 'drawings' in a set of self-employed accounts.

You are not taxed on the drawings.

The following transactions are examples of what would be included in drawings..........

cash drawn from the business for personal use, any payments made for private expenses, payments to HMCR for personal tax, National insurance payments.... basically anything that is not for the business.