Setting up and running a limited company provides more tax benefits than setting up a sole proprietorship.
Let’s take a look at a few of the tax benefits you can expect:
- After deducting all expenses (including directors’ remuneration), a limited company will pay 20% Corporation Tax on any profits at the small profits rate. This applies to most contractors' limited companies.
- With a limited company, you don’t pay National Insurance when drawing dividends.
- One of the biggest benefits of setting up a limited company is that all business expenses are tax-deductible, as long as they're genuinely business-related.
A limited company also provides many unique tax-optimisation opportunities:
- With the crackdown on tax evasion, trying to escape paying the tax you owe by hiding your money in an offshore account is definitely not an option. But there are ways to save on tax using offshore companies with a UK limited company, when done legally and through all the correct channels.
- There is no withholding tax on dividends.
Tax can also be saved by the strategic use of a company pension scheme.