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
|Profit before tax||21,966||35,000|
|Income tax and national insurance||(1,184)||(7,029)|
|Fund left after taxes||16,608||27,971|
|Net take home||28,644||27,971|
Turnover of £60,000
|Profit before tax||41,966||55,000|
|Income tax and national insurance||(2,399)||(13,224)|
|Fund left after taxes||31,593||41,776|
|Net take home||43,629||41,776|
Turnover of £90,000
|Profit before tax||71,966||85,000|
|Income tax and national insurance||(8,920)||(25,824)|
|Fund left after taxes||49,372||59,176|
|Net take home||61,408||59,176|
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.