Sole trader vs Company

blog image

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

CompanySole trader
Profit before tax21,96635,000
Corporation tax(4,174)
Income tax and national insurance(1,184)(7,029)
Fund left after taxes16,60827,971
Take Home:
Net salary12,036
Net dividend16,608
Net take home28,64427,971
Net savings673

Turnover of £60,000

CompanySole trader
Profit before tax41,96655,000
Corporation tax(7,374)
Income tax and national insurance(2,399)(13,224)
Fund left after taxes31,59341,776
Take Home:
Net salary12,036
Net dividend31,593
Net take home43,62941,776
Net savings1,853

Turnover of £90,000

CompanySole trader
Profit before tax71,96685,000
Corporation tax(13,674)
Income tax and national insurance(8,920)(25,824)
Fund left after taxes49,37259,176
Take Home:
Net salary12,036
Net dividend49,372
Net take home61,40859,176
Net savings2,232

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.