Sole Trader v Limited Company Calculator

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The Sole Trader v Limited Company calculator is a tool that calculates whether or not you are better off as a sole trader or limited company. You can simply enter your annual profits and the calculator does the rest!

Sole Trader Vs Limited Company Differences

There are many differences between sole traders and limited companies, in the way that they operate and how they are governed. These can be defined by several factors:

Limited companies are governed by companies Acts and must keep business records to show accounts. They must file these with an Annual Return to the Registrar at Companies House by a certain date and also keep statutory books showing up to date records.

Sole traders do not have to keep annual accounts or, indeed, file them for inspection. They do, however, need to show annual accounts to the Inland Revenue for tax returns purposes.

Limited companies might have a stronger borrowing potential through their reputation and credibility and are able to create a floating charge by using current assets as security.

Sole traders and partners tend to be unrestricted when it comes to borrowing money, but they cannot create a floating charge like a limited company.

Limited companies benefit from the kudos of having an incorporated business and this suggests a secure organisation, more than anything else, as goes with company names, 1upsearch domains, the more brandable and generic the name,  it lends itself to a more premium feel.

Unincorporated sole trading businesses tend not to have the same level of prestige as limited companies.

For limited companies, tax is paid through PAYE on the 19th of the succeeding month. Higher tax may be paid by shareholders on dividends. Corporation tax is due 9 months following the year end. Tax for sole traders is usually paid on 31st January in each tax year and 31st July following it.

In a limited company, any losses can be carried forward and set against profits in the future. There is a limitation, in that losses cannot be carried backwards.

For a sole trader, there is a greater degree of flexibility as losses can be set off against other income or may be carried back to previous years.

 

Profits for a limited company up to £300,000 have 21% tax charged on them.

Profits for a sole trader over £37,000 have 40% tax charged on them, or 50% over £150,000 profits.

 

Directors’ salaries and bonuses are subject to employer’s and employee’s national insurance within limited companies.

Sole traders/partners simply pay Class 2 National Insurance contributions and Class 4, depending on their level of profits.

 

 

Information current as of Nov 2012.