Self Employed vs Limited co

stulaunch

Can anybody tell me the total figures of Income tax & NI payments for somebody earning £50,000 per year between a 'normal' self employed worker and a Limited company worker who pays themselves upto the limit of their tax allowance and the rest in dividends?
We have a few of both kinds working for a particular company I do work for. The Ltd company workers do say they pay a lot less than I do, as a regular self employed. 
We were trying to find out how many year it would take to make up the difference of a £7500 full grant received by SEISS? 

[Deleted User]

For a £50k pa via PAYE the total tax bill (IC, er's and ees) would be £18,045.46.
If that same £50k was paid via dividend the total tax bill (Assuming £12,000 PAYE and balance in Dividend, inc CT, IC and NI) would be £7,862.26, less than half. 
If that was a £50k trading profit for self-employed/sole trader then the total tax bill would be £11,379.12.
At £50k pa the mix of £12k PAYE and balance in dividend is the most efficient route, also paying the £12k via PAYE means you have full NI contributions so are eligible for benefits if needed at some point and accrue full state pension.

unforeseen

However all might change in April next year if the employer decides that the roles fall under IR35

stulaunch

MadMattUK said:

For a £50k pa via PAYE the total tax bill (IC, er's and ees) would be £18,045.46.
If that same £50k was paid via dividend the total tax bill (Assuming £12,000 PAYE and balance in Dividend, inc CT, IC and NI) would be £7,862.26, less than half. 
If that was a £50k trading profit for self-employed/sole trader then the total tax bill would be £11,379.12.
At £50k pa the mix of £12k PAYE and balance in dividend is the most efficient route, also paying the £12k via PAYE means you have full NI contributions so are eligible for benefits if needed at some point and accrue full state pension.

Interesting. In the flooring trade, where I work, the larger majority are set up as Ltd Company. They would only have to have been in existence for a little over 2 years to have made more than the £7500 highest grant award fron SEISS. Maybe some should not complain so much about being overlooked? 

haras_n0sirrah

Not sure you have got your figures right there
50,000 minus 12000 = 38000 for corporation tax at 19% = 7220 in corporation tax
38000 in dividends would be 2000 tax free and the other 36k at 7.5% = 2700 tax
332 employee ni
382 employer ni
Total would be 10624 tax and ni for a sole limited company director.
About 600 tax saving over self employed but a higher accountant bill

Thrugelmir

haras_n0sirrah said:

Not sure you have got your figures right there
50,000 minus 12000 = 38000 for corporation tax at 19% = 7220 in corporation tax
38000 in dividends would be 2000 tax free and the other 36k at 7.5% = 2700 tax
332 employee ni
382 employer ni
Total would be 10624 tax and ni for a sole limited company director.
About 600 tax saving over self employed but a higher accountant bill

These aren't precise numbers merely a guide. 
Allowing for employers National Insurance to distribute £50k.
Gross salary 45,088
Employers NIC £4,911

Deductions
PAYE £6,518
Employees NIC £4,911

Total payroll taxes £16,340

Far far more than £600 difference............Over £5k. 

haras_n0sirrah

I meant approx 600 between self employed and limited company director.

haras_n0sirrah

With employed 50k after tax is 37536 so 12464 in tax and ni for employed but they get sick pay, pension, maternity, redundancy as benefits.
Self employed about 11376
Sole limited company director About 10624 based on 12k salary and 38k dividends 
So employed pay about 1100 more a year than self employed, and self employed pay about 600 more than limited company directors. With increased accountancy fees for limited company there isn't much of a saving over self employed 

dunstonh

The difference is not as big as it once was.     However, one of the major benefits is being able to control your personal income.   And use pensions more effectively.

unholyangel

haras_n0sirrah said:

With employed 50k after tax is 37536 so 12464 in tax and ni for employed but they get sick pay, pension, maternity, redundancy as benefits.
Self employed about 11376
Sole limited company director About 10624 based on 12k salary and 38k dividends 
So employed pay about 1100 more a year than self employed, and self employed pay about 600 more than limited company directors. With increased accountancy fees for limited company there isn't much of a saving over self employed 

You're forgetting employers NI for employees. Then of course you need to take into account differences in taxation and expenses - employees are taxed on an income basis where self employed and ltd companies are taxed on profits. 

Then there's one of the other major reasons people incorporate, limited liability. As a self employed person, your own neck is on the line if you mess up. As a limited company, it's only the company on the line and not you personally. 

Apples & oranges. They both might be fruit but it's not easy to find a direct way to compare them in an accurate way. 

Thrugelmir

haras_n0sirrah said:

With employed 50k after tax is 37536 so 12464 in tax and ni for employed but they get sick pay, pension, maternity, redundancy as benefits.
Self employed about 11376
Sole limited company director About 10624 based on 12k salary and 38k dividends 
So employed pay about 1100 more a year than self employed, and self employed pay about 600 more than limited company directors. With increased accountancy fees for limited company there isn't much of a saving over self employed 

Hence my calculation. Employers National Insurance is a whopping 13.8% on all earnings. This has to be factored in when deciding the level of gross taxable pay to be drawn. Far from a straight comparison of £50k vs £50k.