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

Written by Richard Baldwyn ATT, CTA
March 18, 2019

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 [email protected].

Thanks for reading our blog post.  Please now read our disclaimer here.

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About the author

Richard Baldwyn ATT CTA

Richard is Co-Founder of The Friendly Accountants and has more than 30 years' experience in tax, including 3 years spent inside HMRC before moving into private practice. He advises individuals and owner-managed businesses on a wide range of UK tax issues, including the tax challenges created by digital platforms and online business models.

Richard has specialised in UK crypto taxation since 2016 and was one of the first UK tax advisers to write publicly about the taxation of cryptoassets. His work includes advising individuals, investors, founders and owner-managed businesses on complex crypto transactions, HMRC disclosures and enquiries, DeFi, NFTs and the tax issues facing businesses operating with digital assets.

He also has first-hand experience of cryptoassets and Web3 projects, combining practical knowledge of how crypto is used with wider UK tax experience.

He particularly enjoys making complex tax transactions easier to understand and helping clients apply tax rules to transactions and technologies that do not always fit neatly within traditional tax categories. More about Richard and the TFA team

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