Limited Company Versus Self-employed
Tax on company earnings maxes out at 62%.
SIXTY TWO PERCENT. Employee tax at 45%.
This table speaks for itself.
It’s disclosing the tax type differences between being self-employed and running your own limited company. The take-away is there is not much difference at most points up to £200,000 a year profit, and after that it is being self employed that is ahead not the company.
Of course both these forms create the jobs that employees enjoy — at least we hope they enjoy their work. This work is seen as secure and replete with additional benefits like pensions, paid holidays, occupational sick pay (that means full pay) and so on, perhaps share bonus and salary sacrifice schemes. The list is endless, for no risk plus extensive laws protecting every aspect of their employment, including strictly controlled regulations concerning redundancy etc. Protection all the way. Fair enough.
Last I looked the HMRC list of things employees can “deduct” before paying tax is longer than their list for the self employed. Worth remembering. Trouble is employees tend not to explore this.
Granted Covid 19 has made e v e r y t h i n g risky, but ordinarily employment is accepted as safe and low risk, whereas being in business on your own account is very definitely not: it is loaded with never ending risk.
In the lower ranks, which are far and away the most popular, the advantage to being Limited, based on tax and NICs is very marginal. Deduct the additional costs of limited company reporting and general public exposure of your affairs and I view these as the same as being self employed. There are plenty of reasons to be limited, but tax is not one of them.
Certainly I do not see any evidence of anything that is not fair by using a limited company. I do see composite tax rates in there of 57% and 62%, compared to the highest rate of self employed and indeed employee tax being 45%.
Politics can make things seem simple and yet take advantage of everyone when matters are in fact very complicated. Politicians do tend to gloss over pertinent details, often I suspect because they have not been briefed, or of course worse, they have.
In fact here is the spreadsheet from which the above is extracted:
Note the licence within, it’s free to use.
The lower profit levels down to £20,000 are also in the file.
Let me know if you find any mistakes.