15 February 2022

Will you pay less tax as a limited company?

judgement scale and gavel in judge office

Suppose you are setting up a company in Aberdeen or Scotland. Or if you are established and are considering changing from a sole trader to a limited company. In that case, you want to make sure that you are aware of your legal responsibilities regarding paying tax in Scotland and how to register your new business. There are benefits to registering as a sole trader or a limited company, but you need to know what is best for your company to ensure you are required to fulfil your legal obligations.

What is a sole trader?

Setting up as a sole trader is when you set up your own business and are self-employed and keep all of your profits once you have paid the applicable tax on your earnings. Many sole traders will use software such as QuickBooks to help them manage their income and expenditure and ensure invoices are required for all payments. We recommend that you work with the best accountant in Aberdeen to help you keep your accounts up to date and your self-assessment is completed correctly and on time each year.

What is a limited company?

A limited company is a company that is entirely separate from its owners and typically has shareholders and managers and needs to be registered with Companies House in the UK. This is still applicable even if you are the sole person, director and shareholder. The business will be a separate entity from the person. Unlike a sole trader, the company itself is responsible for all its debts, and can enter into contracts in its name. Limited companies are also entitled to keep their profits after tax but are subject to stricter rules and regulations regarding company accounts when compared to sole traders. This includes several different deadlines compared to sole traders which simply requires tax return filing once a year. Also, the administration costs and time required to maintain a company is much more than a sole trader. However, with the correct strategy in place, the benefits of a company outweighs the costs for most businesses.

Will I pay less tax as a limited company?

As a limited company, it is generally the case that you will pay less tax as you are taking a smaller salary, therefore, making this option more tax-efficient than a sole trader.

At a glance, if you have taxable profits of £43, 430 your tax payments would like like this;

    • Sole Trader – £10,395.81. (assuming total UK taxpayer allowance and Scottish rate of tax applies.)
    • Limited company – £4,984.13. (assuming the correct tax planning strategy is in place.)

If you would like to learn more about the benefits of setting up a limited company in Aberdeen or Scotland, contact A2Z Accounting today and take advantage of our Tax Advice and Consultation services.

How to contact us

If you have a question for our team or would like to arrange an initial consultation, get in touch with us directly today using our online booking form.
Shiham Riyaz
Shiham Riyaz
@shiham.riyaz.5
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Great accountancy firm very helpful and highly recommended. Keep up your good work guys!
Pasha Ahmead
Pasha Ahmead
@pasha.ahmead
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A2Z is very helpful, sympathetic, always ready to help and is always up to date. Price is very good for the quality of service!
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