Limited Companies vs Self-Employment: Is it Still Worth it with All the Changes in Taxation?
There’s no question that being your own boss and running your own business has its appeal. It’s a dream that many people strive to achieve, but with all the changes in taxation over the last few years, is it still worth it to run a Limited Company?
Well, the answer, as always, is “it depends.” One of the biggest changes in taxation for Limited Companies is the introduction of a tax on dividends. Additionally, the rate of corporation tax is increasing. But, if you don’t draw all of your profits from a Limited Company, it can still make sense because you only pay corporation tax on profits, and the maximum corporation tax rate is much lower than the highest income tax rate.
However, if you need to extract your profits, the advantages of a Limited Company reduce the more you earn, and eventually, a company becomes more expensive because you have to pay a dividend tax on amounts extracted. To help illustrate the point, we’ve provided a useful table below, which shows the difference in tax payable depending on your income in 2023/2024.
| Profits [£] | Self Employed Tax [£] | Limited Company Tax Due [£] | Saving Company V Self Employed |
|---|---|---|---|
| 30,000 | 5,234 | 4,814 | 420 |
| 40,000 | 8,134 | 7,426 | 711 |
| 50,000 | 11,034 | 10,032 | 1,002 |
| 60,000 | 15,199 | 12,669 | 2,530 |
| 70,000 | 19,399 | 17,239 | 2,160 |
| 80,000 | 23,599 | 22,370 | 1,228 |
| 90,000 | 31,999 | 32,632 | (634) |
As you can see from the table, the savings for a Limited Company can be substantial, especially if you earn less than £50,000.
But, of course, there are other considerations when deciding on a Limited Company or not that do not relate to tax. One of the significant advantages of a Limited Company is that it provides protection to the business owners. Any losses are limited to the company itself, and none of the owner’s personal assets are at risk. Additionally, a Limited Company can give a business more credibility, and some organizations will only deal with a Limited Company.
However, there are also some disadvantages. For example, the accountancy fees and administration for a company are higher, and the accounts of a Limited Company are available to the public. Plus, the payment of tax is sooner for the self-employed.
In conclusion, the decision to run a Limited Company or not will depend on several factors, including your income, the need to extract profits, the level of accountancy fees, and the desire for protection and credibility. So, while the tax savings for a Limited Company can be significant, it’s essential to weigh up all the factors before making a decision. If you do have any questions about how to set yourself up in the best way, contact Seagrave French now.
