July 2009

TAX SAVINGS OF INCORPORATION

You can still save tax by operating your business through a company rather than as a sole trader or partnership, but the level of savings will depend on the range of salary, dividends and benefits that you want to take out of the company.

If you take a salary equal to the personal allowance of £6,475, and extract the rest of the profits as dividends, you could make the following tax savings in the current tax year. This salary level involves paying some NICs as the NIC threshold is £5,715, but a lower salary would waste part of the dividend tax credit. Salary is also tax allowable for the company whereas dividends are not.

For 2009/10 the following shows for difference profit levels the tax payable as a sole trader, by incorporating as a company and the total saving...