Tax savings as a limited company versus sole trader for the 2019/20 tax year

There are a number of factors to consider when deciding to trade as a limited company. Invariably one of the primary considerations is the potential tax savings available. We've updated our previous post  to discuss the tax savings as a limited company versus sole trader for the 2019/20 tax year.

Tax savings as a limited company versus sole trader

Whether you are an existing business or a start up, you should never adopt a 'one-size fits all' approach. There are a number of pros and cons to trading as a limited company that you will need to contemplate first. 

However, we can give you an idea of the potential tax savings as a limited company versus sole trader for the 2019/20 tax year.

In our calculations below, we have made the following assumptions:

  • A salary is taken up to the primary threshold. You can read about the benefits of this here  
  • The maximum tax free allowance of £12,500 is taken 
  • All post corporation tax profits are taken as dividends 
  • Figures have been rounded up to the nearest £10 and include Class 2 and 4 NIC 

We've also included details for the 2015/16 tax year below for comparison. This was tax year immediately prior to the introduction of the dividend tax

There's no doubt that the dividend tax has impacted on the potential tax savings available as a limited company. However, the potential tax savings as a limited company appear to be  greatest where profits are approximately £75,000 per annum. 

Trading as a limited company can also help you manage your tax liabilities more effectively than as a sole trader. For example:

  • Maintaining your earnings at a level sufficient to avoid the child benefit tax charge
  • Keeping your dividends and remuneration below £100K thus avoiding the loss of the personal allowance
  • The ability to claim capital gains entrepreneur's relief (at 10%) on retained profits when your company ceases to trade 

For more useful information, check out our Ebooks here.

And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at richard@tfaaccountants.co.uk.

Spread the word!

Why Friendly

The Friendly Accountants are Alternative Accountants. Unlike traditional accountants, we look forward - not back.

We work with small businesses and contractors/freelancers who want to embrace the world of online software and the benefits this brings.

So if you'd like to find out more, just give a call or drop us an email - no hard sell.

Just friendly, professional advice!

Who we are

We're a husband and wife team with over 50 years experience of working with small businesses.

So we're in a unique position to understand the challenges that you face every day in your business.

And what's more, we're fully professionally qualified so you can be sure that your affairs are in safe hands.

Copyright 2016 by TFA Accountants Limited