Self-Employment or a Limited Company?
- Maintains individuality working, accepting the risks and drawing benefits.
- May or not have starting capital such as cash, tools and equipment.
- Profits may be added to capital and drawings deducted, although private and business matters must be kept separate.
- No legal obligation to open a business bank account.
- HMRC inspects accounts occasionally and investigates if tax is underpaid.
- Unlimited responsibility for the business debts; a self-employed may have to sell his personal belongings.
- Legal obligation to complete and file Self Assessment Tax Return SA 100.
- HMRC calculates NI and tax liability after deduction of Personal Allowance 12,570-2023/24; tax applies:20% for income to £37,700, 40% for income between £37,701 and 125,140, and 45% when above £125,140.
- Profits are calculated after deducting tax-allowable business expenses from income and payment of liabilities and tax
- Individuality is lost, as a limited company is a separate entity.
- Starting capital is in shares; may or may not have tools and equipment.
- Capital must be kept separate from profits and not be withdrawn except under exceptional circumstances under the Company Act 1985.
- Must open a business bank account as limited company is a separate legal entity.
- Accounts must be annually audited if company is not exempt (dormant)
- Responsible for the debts solely to the number of unpaid shares they initially agreed to be liable.
- Legal obligation to complete and file Corporation Tax Return – CT 600.
- HMRC does not calculate Corporation Tax liability. The main rate is 25% on profits above £250,000, small profits rate – 19% on income to £50,000, and marginal rate of 26.5% on income above £250,000.
- Profits in the form of dividends are paid to the shareholders after deduction of tax-allowable business expenses and liabilities and payment of Corporation Tax.
Capital Gains Tax allowance
Private expense deducted for tax
Aquisition of Shares
Capital Gains Tax
Self-Assessment Form P11D
Annual Accounts, Corporation Tax, Confirmation Statement Form P11D – directors & employees