Sole Trader Vs Ltd Company: What you need to know

Posted on 6 April, 2016 by Chris Grigorovsky

It was reported that the way dividends are taxed is set to change from today, and will affect sole trading and Ltd companies alike. So we decided to give you a rundown into what they both have to offer, which will give you a good indication in what choice is right for you.

Sole or Limited

Sole Trader

Being a sole trader is exactly what the name suggests. Everything is taken care of by you, from keeping records of your businesses’ expenses and sales, to sending a self-assessment tax return ever year. Your business is owned as an individual and classified as self-employed. There are many financial pros and cons you need to take into consideration about being a sole trader.

Pros:

  • Accounts are much simpler than limited companies, with an individual self-assessment tax return submitted annually.
  • Professional accountancy advice is usually required in order to prepare business accounts, tax returns and administration involved in VAT and payroll. However, there is less complexity with these matters, resulting in reduced admin costs.

Cons:

  • The tax burden is much higher compared to a Limited company.
  • It will be harder to raise funds as less established businesses are less able to repay loans compared to a limited company.

Limited Company

Running a limited company is ideal for the structured and corporate minded business person. This means shareholders are responsible for the company’s debt. Financially, there are positive and negative aspects.

Pros:

  • The tax efficiency means that you will take more pay than other options.
  • Less of a risk for personal finances due to structure and between you and the company. So if anything were to happen, you would not be under threat.
  • There are a variety of tax planning opportunities out there which can be tailored to whatever circumstance, where applicable, which would result in tax savings.

Cons:

  • With the greater range of statutory obligations, such as submission of Annual Accounts, VAT Returns and Corporation Tax Returns, there are higher financial penalties if things are not right.

The Numbers

Below are tables that give a good indication of the differences between sole trader and Ltd company, before and after the changes.

2015/16

Profit Sole Trader Limited Company Difference
£30,000 £6,000 £4,388 £1,612
£40,000 £8,900 £6,388 £2,512
£50,000 £12,790 £9,053 £3,737
£75,000 £23,290 £19,053 £4,237

Source: www.smallbusiness.co.uk

2016/17

Profit Sole Trader Limited Company Difference
£30,000 £5,920 £5,109 £811
£40,000 £8,820 £7,709 £1,111
£50,000 £12,630 £10,209 £2,321
£75,000 £23,130 £21,462 £1,668

Source: www.smallbusiness.co.uk

This should give you a good indication of what is financially viable for you, so you can get started on your search for a commercial property.




Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.


Recent Posts

Interest Rates Impact on Commercial Property

Commercial Property Investment Outlook for 2023

The best places to stay on the Riviera

The latest property data has identified Newquay as the fastest property seller’s market in the UK

Investing in your garden can increase your property’s value

French Riviera temping high-end homebuyers

How can the ownership rights of my commercial property impact a business sale?

Should I incorporate virtual property viewings permanently?

Investment expected to increase across Asia-Pacific in 2021

UK property industry slows as the conclusion of tax break looms

BNP Paribas cautioned investors on Friday as debt-trading bonanza that increased its earnings this past year

Over 300,000 property purchases fell through in 2020 – we show the most frequent motives and the best way to get your house sale back on track

House Prices in the Capital Surpass £500,000

Optimism from the Bank of England’s chief economist

The most expensive commercial properties.

Businesses operating from shared premises will miss out on grants