iTax Solutions

Sole trader vs Company

Hello and thank you for coming back. In this blog we will discuss about routes you can choose to run your business.

The format you should adopt to run your business depends on how much are you earning. Company route used to be a very attractive route a few years back but government is not as generous as before towards the companies. The following comparison of net take home at different levels of income may help you to decide which route to take. We choose gross turnover of £40,000, £60,000 and £90,000. We also assume a director’s salary of £12,500 being the amount of personal allowance for 2019/20 and other expenses of £5,000.

Turnover of £40,000

Company Sole trader
Profit before tax 21,966 35,000
Corporation tax (4,174)
Income tax and national insurance (1,184) (7,029)
Fund left after taxes 16,608 27,971
Take Home:
Net salary 12,036
Net dividend 16,608
Net take home 28,644 27,971
Net savings 673

Turnover of £60,000

Company Sole trader
Profit before tax 41,966 55,000
Corporation tax (7,374)
Income tax and national insurance (2,399) (13,224)
Fund left after taxes 31,593 41,776
Take Home:
Net salary 12,036
Net dividend 31,593
Net take home 43,629 41,776
Net savings 1,853

Turnover of £90,000

Company Sole trader
Profit before tax 71,966 85,000
Corporation tax (13,674)
Income tax and national insurance (8,920) (25,824)
Fund left after taxes 49,372 59,176
Take Home:
Net salary 12,036
Net dividend 49,372
Net take home 61,408 59,176
Net savings 2,232

So it looks like company is still a winner. However, company need to carry out some additional compliance work. This may bring some additional cost and narrow the above savings. As a result a sole trader option may work better for you unless the amount of savings is enough to compensate these additional costs.