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.

1 Answer 1


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.

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