British tax planning | Self-employment vs. Company Set-up. Which one can effectively reduce taxes?

Hong Kong is facing the problem of brain drain. Many bosses support their employees to immigrate, they also allow their employees to "bring part-time jobs" to the UK so that they can continue to serve their Hong Kong employers after they immigrate to the UK. For employees, being able to maintain a certain income is certainly a good thing, but it also raises a question: Should they remain as self-employed, or is it more cost-effective to set up a company?

Self-employed tax band vs company tax band

Before discussing whether to open a company, you can first compare the tax differences between the above

Higher tax rates for self-employed people

Looking at the tax rate separately, if the income is around £50,000, it seems that the two tax rates are not far apart. However, once it reaches the higher rate level, the tax rate for self-employed people will jump to 40%, which is significantly different from the 25% of corporate tax. Self-employed people also need to pay for National Insurance (NI Insurance). Since NI is divided into multiple tax band, it is difficult to generalize based on the taxpayer's identity and situation. In theory, the tax rate for self-employed people will be higher than that of a business owner. In addition to the income tax plus the NI tax rate, there is another reason why it is high, and this reason is also the benefit of starting a company.

Can I share taxes when set up a company?

Starting a company allows individual shareholders to share the tax, that is, to retain the profits in the company first, and then distribute dividends over several years. Through dilution, the annual tax pressure is reduced, because how much money does the company have in that tax year? Profits must be taxed in that year, which is the same as for self-employed persons. However, for individual shareholders of a company, dividends can be adjusted according to the situation of the year to achieve the purpose of apportionment.

Not all self-employed people can start a company tax deduction

However, should all self-employed people start a company and get tax deductions? In fact, this is not the case. For some self-employed people, it is "can't" or "not to do". Please pay attention to the next article. I will continue to discuss with you whether you should start a company or remain self-employed .

Author：Wong & Yip Accountants Limited

Tel：+44 7599 614875

Website：https://www.facebook.com/wongyipaccountants

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