Company vs Sole Trader Calculator
Use our tax calculator to compare your take-home income as a sole trader versus as a limited company. Determine which business structure will prove tax-efficient in the long term.
You save £0.00 with Limited Company
Take home with sole trader
Income Tax | £0.00 |
Class 2 NI | £0.00 |
Class 4 NI | £0.00 |
Net Liability | £0.00 |
Take-home | £0.00 |
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Limited Company vs Sole Trader Calculator
Self-employed vs limited company tax calculator
This calculator compares your take-home earnings if you're a sole trader or a limited company.
By calculating annual profits, you can determine whether starting a limited company or a sole trader is more tax efficient.
Enter your annual profits to check how much money you'll save with a limited company if you're already a sole trader.
This calculator makes the following assumptions:
The information is for the entire financial year
You are entitled to Personal Allowance and your company will pay you a tax-efficient salary.
All profits of the limited company are withdrawn as dividends at the end of the year.
You don't have other sources of income.
Contents
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What is a limited company?
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Public limited company
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Private limited company
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Difference between Private and Public company
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How to set up a limited company?
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What is a Sole trader?
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How to register as a sole trader?
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How do you change from a sole trader to a limited company?
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Limited Company vs Sole Trader
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How does a Limited company over a Sole trader help you?
What is a limited company?
A limited company is a corporate legal structure formed and registered with Companies House, the UK’s Registrar of Companies, using the incorporation procedure.
A limited company is a type of firm that is legally distinct from its owners (usually shareholders) and managers (formally called directors).
There are two types of limited companies:
A Public Limited Company (PLC) is a business that can issue its stock to the general public. They are not required to sell the shares to the general public, although they may do so if they want.
A private limited company is similar to a public limited company in that it can be governed by just one person and cannot sell its shares to the public, even if it wanted to.
Difference between Private and Public company
Difference between Private and Public company Public Private | Public | Private |
---|---|---|
Minimum capital required? | ||
Share buyback out of capital possible? | ||
Company Secretary needed? | ||
Annual general meeting (AGM) needed? | ||
Shares listed on a regulated Stock exchange? | ||
Is company valuation easy? | ||
Accounts filing timelines | 9 months | 6 months |
Minimum number of directors | 1 | 2 |
How to set up a limited company?
To start a limited business, you must first decide whether you want to be a Public Limited Company (PLC) or a Private Limited Company (LTD). PLCs must have a minimum of two shareholders, two directors, a qualified company secretary, and share capital of £50,000.
As a result, small enterprises, contractors, and freelancers frequently form private limited companies. Now you must choose a company name; unlike starting a sole trader business, your company name must be unique.
You can register your firm for corporation tax by registering your company name with the Company House. Following registration, you’ll receive a certificate of incorporation, including the date of incorporation, the company number, and proof that your business is authorised.
What is a Sole Trader?
Someone who is self-employed and the sole owner of their business is a sole trader. The term is used to describe the type of business structure you use.
Because you (the business owner) and the company are considered one legal entity, you are entitled to all profits after taxes as a sole trader. You can hire employees, but you must register as a self-employed with HMRC to pay tax via the self-assessment process.
Since it is the simplest business form, working as a sole trader is the most popular option for self-employed professionals in the UK.
You don’t need to register with Companies House. As a sole trader, there are no directors, shareholders, or partners for your firm. You have complete control over the operation and direction of your company. Of course, there are rules to follow and responsibilities to fulfil.
How to register as a sole trader?
Sole traders are the most common business form since they are simple to set up.
To be a sole trader, you must have a National Insurance number and register for self-assessment with HMRC if you make more than £1,000 in a tax year. That is, from April 6 to April 5 the following year.
You’ll have the option of trading under your name or a business name when naming your business; remember that when it comes to naming your sole trader business, other businesses can do so since both are entirely legal.
So choose your name carefully, mainly because a mistake could lead to your business being associated with a negative reputation or poor service.
How do you change from a sole trader to a limited company?
Most people begin as sole traders and then expand into a limited company once they have a solid customer base and a consistent income. The transition from a sole trader to a limited corporation is straightforward.
Follow the standard procedures for forming a limited liability corporation, and make sure to include the following information:
Limited Company vs Sole Trader
The most significant difference between a limited company and a sole trader is that a sole trader is owned and controlled by a single individual with unlimited personal liability for the business. In contrast, a limited company's ownership is divided into equal shares.
A limited company's shareholders have limited liability for the company, which might also mean less personal financial risk when starting a business as a limited company.
Finally, you must assess the positives and negatives of operating as a sole trader vs a limited company, as the structure you choose might affect everything from profits to paperwork. Don't make hasty decisions and consult an accountant if you're unsure, as their tax knowledge is often valuable.
You will find our blog post Sole Trader vs Limited Company useful.
Sole trader | Limited company | |
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Be your own boss | ||
Easy and quick set-up process | ||
Work with a verity of clients | ||
Incorporate a company | ||
Pay yourself a combination of dividends & salary | ||
Pay corporation tax | ||
Benefit of limited liability | ||
Easily add more business owners | ||
Work with the majority of recruitment agencies to source assignments | ||
Lower accountancy fees |
Besides annual self-assessment tax returns, becoming a sole trader is simple and requires no documentation.
Sole traders have more privacy than incorporated enterprises, whose information is public and accessible on Companies House.
Accountancy fees are usually lower for sole traders. Because there is less documentation to deal with. Accountant fees for a limited company are often higher.
Sole traders have the option to discontinue trading and notify HMRC. It's more difficult to dissolve a corporation.
Accounts are not required for a sole trader. You may, however, require finances for mortgages and other needs. A limited corporation must produce and file annual reports with Companies House. These documents, as well as additional corporate information, are available to the public.
Finally, you must assess the positives and negatives of operating as a sole trader vs a limited company, as the structure you choose might affect everything from profits to paperwork. Don’t make hasty decisions and consult an accountant if you’re unsure, as their tax knowledge and experience are valuable.
How does a Limited company over a Sole trader help you?
Your chosen company name is legally protected after registering it as a limited company. No one else can use it. If you wait much longer to register your business, you risk losing the name you want.
If a non-limited company fails, personal assets may be in danger, but this is not the case with a limited corporation. As a shareholder, you cannot be held personally liable for the liabilities of a company; hence, your assets are safe. It means your assets are not at risk; you only risk losing the money you invested in the company.
Furthermore, limited firms will be more tax-efficient than sole traders, as they will pay corporation tax on profits rather than income tax. It provides a more favourable tax rate, making incorporating a limited corporation more profitable.
They can claim a more excellent range of relief and tax-deductible charges against profits.
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