Ltd vs self employed (IR35)

[Newbie124]

I have read so many articles on trading as self employed vs ltd company. Many of the writers give the impression that trading through a ltd company is more tax efficient, but I do not see it. My opinion is based on the calculation below (under IR35). Am I missing anything??

Ltd Company

Monthly income £2,000

Tax £322
Employee NI £172
Employer NI £200

Total Cost £694



Self Employed

Monthly income 2,000
Tax 322
Employee NI 172
Employer NI -
2 Nic 8

Total £502

From this calculation, it’s cheaper to trade as self employed. Or is my calculation wrong??

[bwglaw]

You calculation is wrong.

Under the Limited Company figures you do not pay Employers NI and you do not pay employee NI - because and provided you are a shareholder, then you pay yourself dividends.

Your salary would be £435.42/month (no tax/NI) and the rest is paid to you as dividends. Your company will be liable for Corporation Tax on all amounts after the £435.42/month. Corporation Tax starts at 19%. This is set to increase to 20% in April 2008. If you pay yourself more than £38300 (I think)(including the personal allowance of £5225) then the company will be liable for Corporation Tax at around 32%

[Newbie124]

I thought that if you are caught inside IR35, you would need to pay the full NI and tax. is this not true??

[bwglaw]

You need to seek specific advice as to whether you come into IR35

[Newbie124]

I am 99% confident that I do fall under IR35.
I would appreciate further input/comment on my calculation please
Many thanks

[bwglaw]

I am not an Accountant so cannot confirm how the figures will differ. Your Accountant is the best person to ask