Self Employed Vs Limited Company, Pdf Determinants Of Job Satisfaction For Salaried And Self Employed Professionals

Estimate your annual profits to work out if registering your business as a limited company or as a sole trader is more tax efficient.

Government intervention political cartoon. A sole trader is a single entity with their business for tax and administration purposes whereas a limited company is a distinct entity. The biggest difference between self employment and limited company status surrounds the savings efficiencies that result in terms of tax and national insurance payments once your business profits at the 40000 mark. However as a limited company you enjoy limited liability which protects your personal assets.

As a limited company in the uk you must register for corporation tax. A sole trader is essentially a self employed person who is the sole owner of their business. As a sole trader you run your own business as a self employed person and are solely responsible for the success of it.

Treating you completely separate to that of your business. If you are self employed you complete your self assessment tax return and tell hmrc what profit you have made during that tax year and then you pay tax on this profit. The business needs to be registered with companies house directors must be appointed and an annual tax return along with a set of accounts must be filed.

To answer this question there are many different factors to consider but the one major factor that is likely to attract freelancers is the tax saving that can be made by trading through a limited company as opposed to becoming self employed. As a self employed individual you will be personally responsible for your companys debts so your personal assets could be at risk. It doesnt matter what money you have taken from the business.

The savings depend on profit and individual circumstances but this table gives an indication of the savings. As the owner youll have to declare who the shareholders and directors are although you can be both of these yourself. Sole trader vs limited company.

You are taxed on your profits. A limited company is the same in that it will pay corporation tax on its profits. You wont get a bill for this youll have to work out and report your tax bill yourself.

Use our free online limited company tax calculator to compare your take home pay as a limited company versus as a sole trader. Being a sole trader refers to the structure of your business whereas self employed refers to how you pay your taxes. Being self employed means you pay your taxes via self assessment rather than via paye.

Its the simplest business structure out there which is probably why its the most popular and you can set up as one via the govuk website.