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.
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.
Give us a referral and we will donate a goat to a family in AfricaFind out more