From my understanding the personal allowance for the 2016-2017 tax year is: £11,000 which I wouldn't pay any tax on.

I keep reading that a limited company is a better choice if you have high income. However it seems corporation tax is at 20% - so on an income of £11,000 (for example) you would actually pay more tax than a sole proprietor.

Is there any simple formula / spreadsheet I can use to determine at what amount of income it would be more effective to trade as a limited company?

I did find the following resource: https://paulbanks.org/projects/ukpaye/ However it's only available for the tax year of 2014-2015.


It's more complicated.

Most important, when you own a limited company, you and the company are separate legal entities. You own the company, but you don't own its money.

What typically happens to be really tax efficient: You are employed by your company. The company does contract work for others, you as a person do the work. The company pays you about £8,000 a year - that's the tax and NI free amount. If the company paid more, you would pay 20% income tax, 12% NI, and 13.8% (I think) employer's NI contributions. So the company doesn't pay more.

The £8,000 come off the company's profit. 20% or 19% are corporation tax. Now there is money left - you can either pay that money as dividend (no tax until your income is £11,500, then £5,000 tax free, then 7.5%, and if your income is too high it's 20% (not quite sure about the numbers). AND you have the choice of just leaving the money in the company and taking it as dividends or income at a later time when you make less money.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.