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  • FIRST POST
    • sweetintuition
    • By sweetintuition 15th Apr 18, 9:47 PM
    • 26Posts
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    sweetintuition
    Remain a limited company or switch to self-employed?
    • #1
    • 15th Apr 18, 9:47 PM
    Remain a limited company or switch to self-employed? 15th Apr 18 at 9:47 PM
    I have been working as a limited company (one-man-band graphic designer) for 10 years, and after looking at the new rules for extra taxes on dividends, I'm wondering if it would be better for me financially (and less headache with filing accounts) to switch to self-employed?

    Does anyone have any thoughts on this? Is there a good resource online somewhere that shows the comparison? My accountant is elusive at the moment and really not great at explaining so I want to understand better for myself.
Page 1
    • jimmo
    • By jimmo 15th Apr 18, 11:29 PM
    • 1,975 Posts
    • 2,409 Thanks
    jimmo
    • #2
    • 15th Apr 18, 11:29 PM
    • #2
    • 15th Apr 18, 11:29 PM
    Not going to answer your question as such, but if your accountant, who should be the best person to answer this, is elusive, etc, it really is time to get another accountant. You are the customer and if you are not happy with the service you are receiving then switch.
    • 00ec25
    • By 00ec25 15th Apr 18, 11:59 PM
    • 6,989 Posts
    • 6,659 Thanks
    00ec25
    • #3
    • 15th Apr 18, 11:59 PM
    • #3
    • 15th Apr 18, 11:59 PM
    basic example using 18/19 rates. All expenses/costs except for salary in Ltd Co are ignored as they will impact each entity equally. (Mostly they will be the same for each entity, although the Ltd Co probably has higher accountancy costs)

    Ltd Co
    turnover 80,000
    director's salary 8,424 (no income tax, no NI on salary, pension credit given)
    company taxable profit 71,576
    corp tax 19% 13,599
    post tax profits available for dividends 57,977
    dividends taken 57,976
    company retained profit 1

    director's personal tax
    personal allowance 11,850 - salary 8,424 = 3,426 of tax free allowance remaining with next 2,000 tax free dividend 0% band so balance of dividends taxable 57,976 - 3426-2000= 52,550
    dividend tax payable:
    @ basic rate 34,500 x 7.5% = 2,587
    @ higher rate 52,550- 34500= 18050 x32.5% = 5866

    total tax payable:
    income tax: 8,543
    NI: zero

    Sole trader

    turnover 80,000
    sole trader taxable profit 80,000 all subject to personal tax

    income tax: 80,000 - 11850 = 68150 taxable pay
    @ basic rate 34,500 x 20% = 6,900
    @ higher rate 68150-34500= 33650@40% = 13,460
    total income tax payable 20,360

    NI:
    Class 2: 2.95 x 52 weeks = 153.40
    Class 4 80,000 profit
    9% on profits between 8,424 and 46,350= 37926 x 9% = 3,413
    2% on profits over 46,350 = 80,000-46350=33650x2% = 673
    Total NI payable 4,239

    SUMMARY
    as Ltd Co: post tax income salary 8,424 + dividends 57,976 - tax 8,543 = 57,947
    as sole trader: 80,000 profit - income tax 20,360 - NI 4,239 = 55,401

    better as Ltd Co - now apply your own actual costs
    Last edited by 00ec25; 16-04-2018 at 3:36 PM.
    • chrismac1
    • By chrismac1 16th Apr 18, 6:38 PM
    • 2,537 Posts
    • 1,525 Thanks
    chrismac1
    • #4
    • 16th Apr 18, 6:38 PM
    • #4
    • 16th Apr 18, 6:38 PM
    In general terms a sole trader needs a profit of 30,000 to make running a limited company worthwhile. KEY POINT - this is based on "standard" dividend policy which I am finding - as an accountant with 80 or so limited companies - applies to about 2/3 of clients or less.

    My general advice to clients who have asked this question is to be really sure profits are going to be well below that. After all there are extra costs in winding up companies, hassles of changing business stationery and so on - and the one sure thing is that you will no longer have limited liability and all your personal assets are on the line if business goes wrong.

    One last thing worth saying is that I've had detailed discussions or e-mail exchanges with 10 or so clients about going "sole trader" since the dividend tax came in. So for no-one has yet done it.
    Last edited by chrismac1; 16-04-2018 at 8:26 PM.
    Hideous Muddles from Right Charlies
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