Hi
If I am a sole trader that has income of £50k I would pay tax of £7486 (20% of 37430 after personal allowance) (not including National insurance for simplicity)
If I form a company instead and have income of £50k and pay myself a wage of £8,840 leaving £41160 to be taxed at a corporation tax rate of 19% I would pay corporation tax of £7820.
This is already more tax than I would pay as a sole trader, even if I paid out the resulting company net profit of £33340 as dividend and paid dividend tax of 7.5% (£2070) on £27610 of it (after last of personal allowance and dividend allowance is deducted)
my total tax would be £9890 (corporation tax + dividend tax)
If I had even higher levels of income say £500k then it would be even worse from what I can fathom because a sole trader would pay 45% on most of it (additional income tax rate) vs 57.1 for a company (38.1 additional divided tax rate + 19% corporation tax)
Given that incorporation entails double taxation (corporation tax then dividend tax) on my income, would it not make sense to stay as a sole trader forever no matter how much I earn or am I missing something here. I keep reading about how forming a LLC could reduce my tax burden but from my simple calculations It seems it would increase it not lower it.
- Home
-
Tax News
- Budgets and Autumn Statements
- Income Tax
- Business Tax
- PAYE and Payroll Taxes, National Insurance, NICs
- Company Taxation
- Savings & Investments, Pensions & Retirement
- Capital Gains Tax, CGT
- Property Taxation
- Inheritance Tax, IHT, Trusts & Estates, Capital Taxes
- Tax Investigations & Enquiries
- VAT & Excise Duties
- Stamp Duty, Stamp Duty Land Tax, SDLT
- International Tax
- HMRC Administration, Practice and Methods
- Professionals in Practice & Industry
- General
- TaxationWeb
-
Tax Articles
- Budgets and Autumn Statements
- Income Tax
- Business Tax
- PAYE and Payroll Taxes, National Insurance, NICs
- Company Taxation
- Savings and Investments, Pensions and Retirement
- Capital Gains Tax, CGT
- Property Taxation
- Inheritance Tax, IHT, Trusts & Estates, Capital Taxes
- Tax Investigations & Enquiries
- VAT & Excise Duties
- Stamp Duty, Stamp Duty Land Tax, SDLT
- International Tax
- HMRC Administration, Practice & Methods
- Professionals in Practice & Industry
- General
- Tax Tips
-
Tax Forum
- Income Tax
- Business Tax
- PAYE and Payroll Taxes, National Insurance, NICs
- Company Taxation
- Savings & Investments, Pensions & Retirement
- Capital Gains Tax, CGT
- Property Taxation
- Inheritance Tax, IHT, Trusts & Estates, Capital Taxes
- Tax Investigations and Enquiries
- VAT & Excise Duties
- Stamp Duty, Stamp Duty Land Tax, SDLT
- International Tax
- HMRC Administration, Practices & Methods
- Professionals in Practice & Industry
- General
- Tax Jobs
- Get in Touch