One of our duties to clients is to make them aware of possible ways to minimize the tax they pay without compromising their benefits.  There are various ways in which this can be done, but we believe there are especially substantial tax savings available by otherwise self employed persons trading through a company.

A person need only take an annual tax free salary from their company of between £5044 and £5715, not exceeding their tax free £6475 personal allowance, pay no NIC or income tax, but be entitled to the same basic state pension and other welfare benefits to which a self employed person is entitled.  The rest of the money taken from their company should be treated as dividends since a basic rate taxpayer pays no tax on dividends received whereas higher rate taxpayers only pay tax at an effective rate of 1/4 of the net dividends they receive above the basic rate limit from their companies (albeit this can be deferred or avoided by treating such money as a loan rather than a dividend). 

Companies only pay 21% corporation tax on their first £300000 annual profits.  

For example, a self employed person earning £25000 annual profit would pay - considering the £6475 personal allowance, 20% basic rate income tax on profits above £6475, 8% class 4 NIC on profits above £5715 together with £124.80 class 2 NIC - £5372.60 income tax and NIC [20%(£25000 - £6475 personal allowance) + 8%(£25000 - £5715) + £124.80].  An otherwise identical person as director and shareholder of a company taking the maximum annual salary not subject to employee's or employer's NIC of £5715 would pay £4049.85 corporation tax [21%(£25000 - £5715 tax free salary)], but pay no NIC or income tax  - an overall saving of £1322.75 - and be entitled to the same basic state pension and other welfare entitlements to which a self employed person is entitled.

We can obtain named companies for £26 from a formation agent plus any time for our administration and, from our experience, operating as a limited company is no more expensive than being self employed in terms of our modest fees.  Also the Inland Revenue do not investigate persons who use this tax saving route because it is above board.  Indeed, in our substantial experience, there is a lower chance of being investigated by the Revenue by incorporating rather than remaining self employed - none of our clients who have incorporated since the tax advantages of incorporating began has been the subject of any tax investigation or enquiry whatsoever.