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The SK Accountants team
Thank you for getting in touch. A member from our friendly team will aim to get back to you shortly.
All the best,
The SK Accountants team
Thank you for getting in touch. A member from our friendly team will aim to get back to you shortly.
All the best,
The SK Accountants team
Navigating the complex landscape of taxation is a fundamental responsibility of all business owners.
When it comes to small businesses in the UK, there are predominantly two categories to consider: sole traders and limited companies.
Sole Traders
Income Tax
As a sole trader, your business income is regarded as your personal income.
You are required to pay Income Tax through Self-Assessment. The Income Tax rates for the 2023/24 tax year are as follows:
National Insurance
Sole traders are also required to pay Class 2 and Class 4 National Insurance Contributions (NICs).
Limited Companies
Corporation Tax
Limited companies are subject to Corporation Tax on their profits.
The amount of Corporation Tax your company is liable for is contingent on its taxable profits.
A 19 per cent rate is applied if your company’s profits are no more than £50,000.
Profits equalling or exceeding £250,000 incur a 25 per cent tax rate.
For profits that fall between £50,000 and £250,000, a graduated scale ranging from 19 to 25 per cent is used to determine the Corporation Tax Rate.
Dividend Tax
If you are a director of a limited company, you might choose to take out a part of the profits as dividends.
Dividends have their own tax bands, which are separate from Income Tax bands.
Salaries and National Insurance
Directors who are also employees of the company will have to pay Income Tax and National Insurance on their salaries.
The company will also have to make employer National Insurance contributions.
Pros and Cons
Sole traders
Advantages
Disadvantages
Limited companies
Advantages
Disadvantages
Understanding the nuanced tax implications of operating as a sole trader versus a limited company can significantly influence your business’s financial health.
No matter what your choice is, it is always recommended to consult with an accountant to understand the intricate details and ensure that you are meeting all regulatory requirements.
For more advice on what business structure is best for your small business, get in touch today.
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