Our sole trader vs limited company calculator shows how much tax you can save trading as a limited company. The link to our sole trader vs limited company tax calculator is below. Just complete the first 3 boxes, then go down and click calculate my tax. But first, remember there are factors other than tax to consider when comparing a sole trader vs limited company. See below for most of these factors.

Still Save Tax Despite The Dividend Tax

Dividend taxes increased in April 2016 by 7.5%. This slightly reduces the tax savings made by incorporating. However, you still save tax trading as a limited company until profits are very high. Also, you can save even more tax using a company by splitting the ownership of it. Then you can split the dividend income you take from the company. For example, if you and your spouse own 50% each you would normally share the income 50% each.

Dividend taxes increased by a further 1.25% in April 2022. But self-employed national insurance also increased 1.25%. So it made no difference to how much you can save by trading as a limited company.

Let’s look first at the different types of business structure you can choose.

Sole Trader

Sole Trader vs Limited Company

This is the simplest form of business to start. You simply carry on business on your own account. As a sole trader you pay income tax and Class 4 National Insurance on your net profit. You can employ people including your spouse. But you must only pay them for the value of the work they actually perform.

Partnership

A partnership is two or more people carrying on business together with a view to making a profit. The partners in a partnership are all joint and severally liable for partnership debts. So if anything goes wrong, each partner’s personal wealth is at risk. Personal tax bills are based on the share of partnership profits. It is advisable to have a partnership agreement to document the business arrangement between the partners. This would include how you share profits and how partners will join and leave the partnership. Even a husband and wife partnership should have a written partnership agreement. You can use this to show HMRC that both parties have a right to share the profits.

Limited Company

A limited company is a separate legal entity from its owners. These are the basic facts…

  • The limited company owns the business, not you.
  • The company must have at least one shareholder.
  • Also, it must have at least one director. But, there is no longer a requirement for private companies to have a company secretary.
  • The shareholders do not have to be directors, but they usually are also directors in small companies. A company must treat directors as employees of the company. But they do not have to draw a salary from the company. Instead they could take a dividend as a shareholder.
  • If you are the only shareholder, you will have sole ownership of the company.
  • The company pays corporation tax on its net profit after salaries but before dividends.
  • Company Law governs a company.

Main disadvantages of trading as a Sole Trader vs Limited Company…

  • A sole trader is just an individual in business. Limited Companies may appear more credible and substantial although in reality, this is not necessarily the case.
  • Sole traders are personally liable for the business for an unlimited amount. So if anything goes wrong, a sole trader’s personal assets (e.g. house) are at risk. If anything goes wrong in a company, only the company’s funds and assets are at risk. So it offers protection to the shareholders’ personal assets. If a company can’t pay its creditors, the creditors can’t normally come after your personal assets. However, banks etc often require personal guarantees from the shareholders or directors when dealing with small limited companies.
  • A Limited Company has better borrowing potential than a sole trader. That’s because it can use current assets as security by creating a floating charge over its assets.
  • It’s more difficult to share or hand over a sole trader business with other people. Different people can hold different proportions of shares in a limited company. This means you can easily pass shares onto the next generation. Also, you can pay different amounts of dividends to different shareholders

More disadvantages of trading as a Sole Trader vs Limited Company…

  • A sole trader owns all of the business so pays tax on all of the net profit. In a company, you can have different classes of shares with different rights. Such as non-voting shares for someone who only wants to invest some money into the company. Also, if you want to pay each shareholder a different dividend rate. For example, a wife owns 50 A shares and a husband owns 50 B shares. So they own the company 50% each. But they can choose to pay dividends on one type of shares and not the other. So the wife could take all of the dividends. However, there is a trap, so take advice to avoid it.
  • Having a limited company can create significant tax advantages. That’s because it pays tax on its profit at just 19%. This is a lot lower than the higher rates of personal tax (40%). However, when you take money from the company you usually pay tax on it. For example, you pay tax at 0% or 8.75% or more when you take dividends from a company.
  • If a sole trader leaves profit in the business there is no tax advantage. He/she pays tax all of the profit made. A shareholder can leave profit in a limited company by paying less dividends or salaries which will save the owner tax.

 

Main advantages of using a Sole Trader vs Limited Company…

  • Accounts are optional for a sole trader. Although you may need accounts for mortgages etc. A limited company must prepare and file annual accounts at Companies House. These are available for public inspection as is other information about the company. There are plans to make a small company’s profit and loss account available to the public.
  • A sole trader does not have to comply with Company Law. Directors are personally subject to company regulations. Directors receive fines and/or a criminal offence for failing to comply.
  • Sole traders can just cease trading and inform HMRC. It’s more complicated to wind up a company.
  • You usually pay slightly less accountancy fees as a sole trader. A limited company generally involves higher accountancy fees as there is paper work to deal with.
  • Sole traders can offset losses against other income to save tax e.g. employment income. You can’t offset a limited company’s losses against the owner’s other income. But you can offset the losses against future or past profits to save tax.

We can help you

Remember there are factors other than a Sole Trader vs Limited Company tax calculator to consider. This calculator now includes the new dividend tax rates which started in April 2016. Ask us for further advice on whether you should trade as a sole trader vs limited company. We offer a free company incorporation service for all of our clients including new ones. Our accountancy fees are from £50pm for companies.

Sole Trader vs Limited Company Tax calculator

Click >>here for our Sole Trader vs Limited Company Tax Calculator<< Then go to Tax Calculators, Incorporation Calculator, complete the first 3 boxes, or just the first box if you’re a sole trader, then go down and click Calculate.

Would you like to register as a limited company?

Talk to us. We’ll help you consider the other factors not just the result of the sole trader vs limited company tax calculator. We’ll advise you on whether you should trade as a sole trader vs limited company. Ready to choose between a sole trader vs limited company? Contact us about our accountancy services from £20pm. Or go straight to our free new company registration form. We don’t charge to register your new company. But there’s a £12 fee payable to Companies House and you’ll have to start paying us towards your company accounts.

Do you want to remain or be a sole trader?

We can help you too. Our sole trader services start from £20pm including accounts, tax return and reviews. Or if you do your own accounts we can do the tax return for you from £50pa.

VAT Calculator

Do you need a quick VAT calculator to get from gross to net or from net to gross? Use our VAT calculator below.

Are you struggling to calculate VAT from gross or VAT from net amounts? That’s exactly what our VAT calculator can do.

What our VAT calculator doesn’t do is calculate the net or gross from the VAT amount. But here’s how you do it at 20%: multiply the VAT by 5 to get the net amount, or by 6 to get the gross amount.

If you need help with VAT returns, our Quarterly package from £40pcm includes VAT returns, Management Accounts, Annual Accounts, Tax Returns, Advice and regular reviews of your online accounting. See all of our fixed monthly fees or just ask us for a quote using our quick enquiry form.

We also have a Flat Rate VAT Calculator, which calculates whether you could save VAT under the Flat Rate VAT Scheme.

The VAT Calculator


Our VAT Calculator Guide for Beginners

Most purchases carry a VAT charge. Value Added Tax (VAT) is levied on most business transactions and on many goods and some services.

There are three rates of VAT in the UK:

  • 20% (the ‘standard’ rate) which our VAT calculator above uses
  • 5% (‘reduced’ rate) and
  • 0% (‘zero’ rate).

You will probably have to register for VAT if any of the following apply…

  • The taxable turnover of your business in the previous 12 months reaches the VAT registration limit (£85,000), although you can also register on a voluntary basis if your turnover is below this.
  • You believe your turnover in the next thirty days will exceed the registration limit.
  • You take over a business as a going concern whose turnover meets the conditions of the previous two points.
  • You buy goods from elsewhere in the EU to a value above the registration limit in one calendar year.

There are penalties for failing to register on time.

Goods and services liable to VAT are known as ‘taxable supplies’. Once registered you must charge VAT on all taxable supplies.

VAT doesn’t apply to everything. Supplies which are specifically not subject to VAT are referred to as ‘exempt’ and include: insurance, financial services, postal services, health and education, although there are exceptions in every category.

The amount of VAT payable to Revenue and Customs is the difference between your output tax on your sales and input tax on your purchases. If input tax is greater than output tax, a refund may be owed. The VAT due is normally payable each quarter following the submission of a VAT return, although under certain schemes the payments can be made monthly.

Should you register?

If your taxable turnover is below £85,000 you don’t have to register but you may be eligible to apply for ‘voluntary registration’.

There can be advantages in registering such as…

  • increased business credibility;
  • potential savings if your supplies are zero rated but you can still reclaim VAT on your purchases;
  • potential savings if you mainly supply other VAT registered businesses who don’t mind being charged VAT and you can then still reclaim VAT on your purchases.

This does however have to be weighed up against the hassle factor of completing VAT returns, and paying the VAT due every quarter. If you supply the general public you will probably not want to register as this simply puts your prices up by the rate of VAT.

VAT Schemes

There are various VAT schemes, mainly for small businesses…

  • Cash accounting – If your taxable turnover is under £1,350,000 a year you can arrange to account for VAT on the basis of cash received and paid, rather than the invoice date or time of supply.
  • Annual accounting – You can complete one VAT return per year rather that four if your turnover is under £1,350,000. You must also make nine payments on account throughout the year, and a balancing payment with the VAT return.
  • Flat rate scheme – This is for businesses with a turnover of under £150,000 and saves on administration as you just pay a set percentage of your VAT inclusive turnover based on your business sector rather than accounting for VAT on each individual “in and out”. It can also reduce the VAT you pay in some situations.
  • Retail schemes – These apply to retailers and offer an alternative if it’s not practical to issue invoices for a large number of supplies direct to the public.

How We Can Help You

We can assist you with…

  • registering for VAT
  • advising on suitability of VAT schemes
  • assisting with completion of VAT returns
  • setting up your accounting system to deal with VAT
  • representing you in any disputes with HM Revenue & Customs
  • providing VAT planning advice for complex transactions such as when buying property.

If you need help with VAT returns, our Quarterly package from £40pcm includes VAT Returns, Management Accounts, Annual Accounts, Tax Returns, Advice and regular reviews of your online accounting. See all of our fixed monthly fees or just ask us for a quote using our quick enquiry form.

Disclaimer

Company Car Tax Calculator (and Fuel Benefit Tax) 

Our company car tax calculator, including the associated fuel benefit tax, is below. First, here’s some advice on how company car tax is calculated and how you can reduce it and the fuel benefit tax.

Minimising Company Car Tax

The cost of being provided with a company car has reached extremely high levels and whether to make use of a company car for private purposes now requires careful consideration to minimize the company car tax calculator.

There are a number of factors that can be considered including the following…

  • The Basics – the company car tax calculator is based on the vehicle’s list price, CO2 emissions and the type of fuel. The lower the list price and CO2 emissions the lower the tax charge, although diesel vehicles carry a premium. There is no charge for cars which cannot produce CO2 emissions under any circumstances.
  • Classic Cars – those cars aged 15 years or more with a market value of £15,000 or more have the market value applied instead of the list price. But for those worth less than £15,000, the list price is used which may be very low.
  • Pool Car – if a company car is not normally kept at any individual’s residence and is not just used by one employee, and where any private use is incidental to the business use, the car can qualify as a pool car and not be a taxable benefit at all.
  • Cars in a Sole Trader or Partnership – by running a car through an unincorporated business for the business owner there is no benefit in kind. Instead the tax deductible expenses that can be claimed on the car are restricted by the private proportion of use but overall this is far more generous than the charges for a company owned car. Some businesses will split their business into two trading elements with the cars being held in the unincorporated side.
  • Cash Contribution – the list price that the car benefit is based on is reduced by any capital contribution made by the employee up to a maximum of £5000. It is possible for the company to loan the employee this amount as well, interest free, without there being a benefit in kind on the interest free loan.
  • Company Vans – there is no taxable benefit where employees have to take their company vans home and are not allowed any other private use. Otherwise, the taxable benefit for the private use of a company van is £3,000 (with no reduction for older vans) plus a further £564 of taxable fuel benefit if fuel is provided by the employer for private travel. The difference between a large car and a van can be marginal, but vans are generally those built to carry goods with a design weight of up to 3500Kg . A double cab pick-up is defined as a van if it can carry a payload of at least 1 tonne.
  • Private Fuel – a fuel benefit tax charge for private fuel applies even if only a minimal amount of private petrol is used so it is often better to avoid this in the first place or look at repaying the private fuel provided to avoid the charge.
  • Home to work travel – be aware that this generally counts as private travel, not business travel.
  • Tax Free Mileage Allowance – if you own the car personally and use it for business purposes, you can charge the business for business related journeys and receive the amounts tax free. The tax free limit is presently at 45p per mile for the first 10,000 miles and 25p thereafter and can often prove to be better to do this than to pay company car tax. The company can also reclaim VAT on the fuel element of this payment.

How We Can Help You

We can assist you with tax planning advice in relation to your company car. We have provided a company car tax calculator below, but please contact use for further advice.

Company Car Tax Calculator
To use our company car tax calculator, complete all the boxes including whether there is a fuel benefit, then click calculate at the bottom.

Company Car Tax Calculator Disclaimer

Flat Rate VAT Scheme

The flat rate VAT scheme is designed to make it simpler and quicker for small businesses to complete their VAT return.

This is because VAT payable to HMRC is calculated as a particular percentage of the gross turnover of the business and not as the difference between VAT on individual sales and purchases. In particular there is no need to record the VAT incurred on most purchases and determine whether it is reclaimable or not, so there is less chance of error. The amount of VAT charged to customers remains the same whether using the VAT flat rate scheme or not.

However, some business will pay less VAT by using the flat rate scheme and some may pay more by using it as the percentages used are based on the average VAT payable by particular trade sectors. It is important to calculate the financial effect before applying to use the flat rate VAT scheme. See our Flat Rate VAT Calculator below.

If you need help with VAT returns, our Quarterly package from £40pcm includes VAT returns, Management Accounts, Annual Accounts, Tax Returns, Advice and regular reviews of your online accounting. See all of our fixed monthly fees or just ask us for a quote using our quick enquiry form.

 

The VAT Flat Rate Scheme Calculation

These are the steps in the calculation…

  • The output VAT for a VAT return is established by multiplying the VAT-inclusive turnover by a fixed percentage which is determined by the sector in which the business operates. This goes in Box 1 on the return.
  • All turnover is included in the taxable supplies it has made, whether standard, reduced, zero rated or even exempt and it is the gross turnover.This figure goes into Box 6.
  • Usually no VAT can be reclaimed on purchases but there are exceptions for any VAT on purchases before the business was registered and VAT and on a single capital asset that costs over £2000 inclusive of VAT can be reclaimed. The VAT on these goes in Box 4 as usual and the net amount of the purchase in Box 7.

So if for example your gross turnover comes to £20,000 and the percentage for the sector is 10%, the VAT due is £2000. If what you purchased was a capital asset for £3833 including £500 of VAT , then the VAT payment due would be £1500.

To qualify to join the flat rate VAT scheme…

  • A business must have a taxable turnover, excluding VAT, of no more than £150,000 a year. The taxable turnover is the total value of supplies or sales made by the business that are liable to a VAT whether at standard, reduced or zero rates, but excluding any expected sales of capital assets.
  • A business must not already use the second hand goods, the tour operators or retail schemes.
  • The business must not be required to use the capital goods scheme for certain capital items.
  • A business must not have been found guilty of a VAT offence in the past year or be associated with another business or registered as part of a VAT group in the past 2 years.

A business must apply to join the flat rate VAT scheme and can leave whenever it chooses by informing HMRC in writing.

The Business Sector VAT Flat Rates

Different business sectors must use their own flat rate VAT.

A business must choose its sector on the grounds that it most closely describes its main trading activities. If the trading mix changes, so say the majority of the turnover comes from supplying restaurant meals rather than alcoholic drinks the trade sector to be used will change from ‘Pubs’ (6.5%) to ‘Catering Services’ (12.5%). The change in sector should be made from the start of the VAT period that contains the anniversary of joining the flat rate VAT scheme.

It is advisable to set out in writing why you made the selection of trade sector.

A lot of the rates changed following the VAT increase to 20% on 4th Jan 2011. Here are the rates from 4 Jan 2011.

1% Reduction in First Year of VAT Registration

In your first year of VAT registration there is a 1% reduction in the flat rate VAT that is applied to your turnover. The reduction is for for the 12 months following the date of VAT registration and not the date of joining the flat rate scheme. There is no entitlement to the 1% reduction if you register for VAT 12 months after you were required to register.

A Trap in the Flat Rate Scheme

The flat rate must be applied to all business income, including rents and sales of assets where VAT was not reclaimed, such as cars or property, but not interest received from business bank accounts. This means you effectively pay VAT on the gross receipts of sales on which you have not collected any VAT.

If you are a sole-trader the flat rate should be applied to any letting income you receive in your sole name, as lettings are regarded as a business for VAT purposes. Lettings undertaken as a partnership, perhaps jointly with your spouse, are not counted as part of your sole-trader business income. When you sell a let property the flat rate should be applied to the total proceeds. You can withdraw from the flat rate scheme before you sell a high value item such as a property, but you have to stay out of the scheme for at least 12 months.

How We Can Help You

We can advise you on the suitability of the flat rate scheme for your business, applying to join the scheme and assistance with completion of your VAT returns.

Flat Rate VAT Scheme Calculator

Click here if you can’t see it below.


If you need help with VAT returns, our Quarterly package from £40pcm includes VAT returns, Management Accounts, Annual Accounts, Tax Returns, Advice and regular reviews of your online accounting. See all of our fixed monthly fees or just ask us for a quote using our quick enquiry form.

Disclaimer

 

Our tax calculator tools will help you work out roughly how much tax is payable, and whether or not you can save tax doing things differently. These are UK tax calculator tools only, but our fuel cost calculator is not UK specific.

We have a PAYE tax calculator which is also a national insurance calculator to help you check your wages calculation is correct. Our incorporation tax calculator, is a corporation tax calculator and a self employed income tax calculator in one, so you can compare which will save you more tax. Another popular one for small businesses is the VAT flat rate scheme calculator which helps determine whether or not you could save tax joining the VAT flat rate scheme.

Please note that no reliance should be placed on any of the calculators. They are not a substitute for proper professional advice.

Disclaimer