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Where you expect to make a taxable profit of around £60,000, using a tax efficient strategy of mixing salary and dividends could mean you may be better off trading through a limited company.

The use of a limited company structure may offer a tax advantage in some cases. However, where you live in the UK impacts the level of savings you can make. If you live in Scotland, income tax rates are higher than for the rest of the UK. Therefore, the tax savings of using a limited company in Scotland could be more than in the rest of the UK.

Profits of around £60,000 are, however, something of an optimal level of profits when comparing a sole trade tax liability with a company. If your profits fluctuate, or tax rules change, the tax outcome may be different. 

Because everyone’s circumstances are unique, we would recommend you obtain tailored advice specific to your circumstances before making any decision on how you trade moving forwards.

In addition to tax considerations, you will need to take account practical and commercial differences. For example, the need for limited liability, and the simplicity of operating as a sole trader compared to the slightly more complicated requirements a company must observe. 

Incorporating your sole trade business comes with some additional obligations and costs and you will need to weigh these against the potential tax saving you may make. Read our full article on which business structure may be best for you.

At TaxAssist Accountants, we are experts at helping you choose the right vehicle to operate your trade through, and helping you maximise your tax efficiency.

To find out more about our services and to book a free consultation, call 0800 0523 555 or fill in our online enquiry form

Date published 12 Jul 2023 | Last updated 23 Apr 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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