November 18th, 2015

Am I still better off as a limited company with the new dividend tax changes?

The surprise in the summer budget was the introduction from 6 April 2016 of a new tax on dividends.

The new rules give you a ‘tax free’ amount of dividends of £5,000 per year and after that you’ll pay tax of 7.5% or 32.5% if you’re a 40% tax payer.

So, if you’ve set up a limited company – is it still worth it? Take a look at our graph.

When are you better off being limited in 2016-17

Our graph shows the tax benefit of being a limited company compared to being a sole trader.  It does assume a fairly simple set of circumstances so treat it as a rough guide.

The result is surprising (and even harder to advise on!). A company with profit of about £91,000 would only save about £500 by being a company.  This rises to a respectable £4,000 when profit is about £111,000 but then falls at £141,000 to being worse off as a limited company!

Our graph also ignores the other considerations of being a limited company such as:

If you’d like a more detailed discussion or whether you should be a sole trader or a limited company then don’t hesitate to get in touch.

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Limited Companies


John manages a wide portfolio of owner managed businesses and oversees the smooth operation of the firm’s payroll department.

After obtaining his degree in mathematics from the University of Liverpool, John joined Jonathan Ford & Co in 2004 and qualified as a chartered accountant four years later. John likes to keep abreast of developments in tax and accounting and is responsible for the mentoring of junior staff.

Outside of work, John enjoys keeping fit and is a Liverpool FC season ticket holder.

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