What is benefit of working as a Limited company compared to PAYE basis in the UK.
State/Country relating to question: United Kingdom
Thanks for your question
First I must stress that if it were not for a limited company, you would in fact be an employee, then you cannot become a limited company or this would be in breach of IR35 legislation,. Link here with more information http://www.hmrc.gov.uk/ir35/
So if you are in fact an employee, then you must remain an employee and cannot be self employed, or a limited company.
But if is not an issue then please advise further, as you would then, either be self employed or a limited company - PAYE would not come into it at all.
Many thanks for your answer, So what will be the benefit of working as a limited company (very common in UK contact and temp job market) compared to being self employed?
The main benefit is the tax savings that can be made, as you can draw just enough salary to use your personal tax allowances, and then draw dividends up to the basic rate limit and be paid these with just a 10% dividend deduction, (but dividends can only be drawn if there are sufficient profits in the company after corporation tax has been charged)
However, the tax obligations with a limited company are vast, and so subsequently the accountancy costs wipe out any tax savings to be made, as you have a Companies House tax return, a Corporation tax return, Payroll each month, Annual Employer return, P11d Expenses and Benefits returns, Self Assessment and Employment page.
As self employed individual your tax is a little higher, but there is only a self assessment tax return with a self employment page to worry about.
In a scenario of a business making a net profit of £200,000 the tax savings as a limited company would be approx £2000 which would barely costs the accountancy fees
26 HMRC expertise, PAYE, Self Assessment ,Residency, Capital Gains, CIS ask for Sam Tax