Individual vs Company taxation in England / Comparison with tables

There are those who wish to understand the numbers in the differences between a company and person and those who wish to choose whether they want to start a business in England as a company or a person (self-employed). Whatever your reason, in this article we are aiming to help you draw some general conclusions which to guide your choice.

NOTE: When we talk about natural persons, we refer to individuals who live in England. A natural person living abroad cannot own a business as such but only through a company.

To avoid extended and often hard to understand texts, we will present this article mainly in the form of charts which will examine the relevant cases as categories A, B and C and take into consideration a minimal accountant’s fee.

The categories in brief:

Α1 - Employee with £50,000 income

Α2 - Self-employed with £50,000 income

Α3 - Company with £50,000 income

Β1 - Employee with £100,000 income

Β2 - Self-employed with £100,000 income

Β3 - Company with £100,000 income

C1 - Employee with £125,000 income

C2 - Self-employed with £125,000 income

C3 - Company with £125,000 income

NOTE: Chart 1 presents the expenses of a company given that no capitals are withdrawn from it in order to compare and evaluate the numbers efficiently. Chart 2 will present a comparison with the highest capital withdrawal for a self-employed.

Chart 1 *NI: National Insurance

Employee | Self employed | Company

NOTE: After £100,000 of income for a natural person, £1 of non-taxable income is deducted for every £2. This means that there is no non-taxable income at £125,000 and thus the tax you will need to pay rises dramatically.

IMPORTANT: This article takes into consideration the rates of tax year 2020/21. For other time periods, please click here:

- Tax rates for employees and self employed
- Tax rate for company

- Tax rates for National Insurance of employee and employer
- Rates of National Insurance for self-employed

Let us see a comparative example for self-employed against a company where the director is also the only shareholder.

We suppose that we need to withdraw £100,000 capitals from the business and in the case of a company, we will withdraw all the money in the name of the director (employee) and shareholder in the most efficient way.

In chart 2 we can see the total outcomes for a self-employed as well as a company in the first year (for the next year the accountant expenses will also be considered).

Chart 2 / Example with £100,000 income

NOTE: in the case of a company, you need to remember that all available money has been distributed to the sole director-share holder. In case this method does not apply, dividend taxes do not apply either and thus the tax is reduced by £13,374.52.

Whether the shareholder should withdraw dividends depends on the route they have chosen to follow in terms of tax as well as their personal needs.

IMPORTANT: The above calculations assume that the taxpayer is on the basic and upper tax scale. If the taxpayer belongs to a different scale or is not tax-free eligible, these calculations may vary. In the case of self-employed, you should also consider in advance tax payment (Payments on Account).

Speak to your accountant for more detailed and individual information or arrange a Skype Consultation with us.

Translated / Edited by, Apostolia Nestoratou.

© 2020 UPECO LTD



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