i have just started working for a design company, full time from home earning around £250 per week. I would like to know if it is better for me to set myself up as a limited company, soletrader or self employed and how that would effect how i pay for my tax and national insurance
Thank you for any help you can spare!
Hi,
Sole Trader and Limited Company is the same thing by the way
So that eliminated one of the options quite easily.
Self employed:
You pay Class 2 and class 4 NICs
Class 2:in the 2007-8 tax year the weekly contribution is £2.20 which equates to £114.40 a year.
Class 4:If your profits and gains are over a cretain amount (at £250pw) then they will be. You pay class 4 contributions as well as class 2. These are earnings related and paid at a higher rate on earnings between the lower and upper earnings limits and at 1% thereafter
so you earn £250 pw = £13000pa you are well within the upper limit so you would pay 8%NIC on 5225 to 1300 =£7775x8%
= £622
So class 2=£114.40
Class 4=£622
Total NIC=£736.40
Then you pay income tax on top of that
Your first £5225 is tax free
The next 2230 is taxed at 10%
above that and up to £34600 is taxed at 22%
so you would pay
0-5225 £0
£5226 - £7455 £223
£7456-£13000 £1219.9
Total £1442.9
Bear in mind that you can reduce your taxable income by claiming your business expenses and taking this off your profit figure. (eg. use of home as offie, stationary expenses, travel to clients, mobile phone bill)
Limited company:
In short you and the company are separate entities
You are employed by the company, you would also be a shareholder in the company and be entitled to dividends.
There are many tax saving tips which can be employed using the Ltd method but a bit to deep to go into here!
