UK sole trader or limited company

Assuming a "standard" model with you owning 100% of the voting rights, you would be £869 better off in the 2018-19 tax year as a limited company, assuming £300 of extra accountancy fees.


However, if you have a significant other, or adult children, who currently have incomes under the 40% level, the potential savings are a great deal higher than this - an additional 5,764.


That's because the standard model assumes you pay 32.5% dividend tax on £23,059 of the dividends in your new company. In practice, it is unlikely you would do this as that is a penal rate on top of 19% corporation tax.


The ideal scenario is to load up your significant other and / or adult children with dividends, which would be at 7.5% tax rate instead. Note that some "HMRC fan" type posters will probably come into this thread telling you how terrible this idea is.


Well all I can tell you is that set up correctly you don't have to worry about HMRC with this. My own company is set up like this. So are the companies of around 20 clients where I am their accountants. No tax enquiries or even a hint of one, nor should there be as under current tax laws HMRC would have no realistic chance of winning one.