There are many reasons for incorporating as a limited company, and saving tax was one of them. However, the tax regime for small and medium sized companies has, and is, changing so much that tax savings are disappearing, and fast. 

There is the opportunity to save in National Insurance contributions because as a self-employed person, you must pay the flat rate Class 2 National Insurance contributions, unless your profits are very low, plus you pay Class 4 NI on profits above a certain level.

Whereas if you take profits out of a limited company as dividends there’s no NI on dividends at all, at least, not for the moment. If you also take only a low salary from the limited company, there will be little or no NI on that salary.

So, there may be small financial savings overall but there are also disadvantages that mean incorporation should not be gone into lightly. It’s not the right option for everyone. The compliance burden is much more costly than for Sole Traders/Partnerships and deadlines much more strict. So if you are quite an organised person and you want to take every allowable opportunity to minimise payments to the Chancellor, then its worth consideration.

If you want a more detail on this topic, then contact Angie Ayre.