If you’re working as a self employed dentist, you may be aware that you can set up your own limited company – but why would you want to, and how could it help save you money?
You can read our article here which compares self-employment to having a limited company.
Here, we show 2 examples based on the tax rates of 2023/24 of how much tax you could save.
Example 1: Single director/shareholder, takes all cash from the company for personal use
Deirdre has £70,000 income before expenses and is considering whether to be self employed or use a limited company.
As you can see below, having a limited company would save her £1,500 once the additional accountancy costs are taken into account. She could also save another £500 – £1,000 in tax by using tax free benefits only available to companies.
If she has children, she’ll be able to keep most of her Child Benefit with the limited company. However, if she was self-employed, she would have to repay it all via her tax return, because once personal income goes over £60,000, you are not entitled to any Child Benefit payments.
| Company | Self-employed | |
| Turnover | £70,000 | £70,000 |
| Salary for Deirdre | £12,500 | |
| Other expenses | £9,500 | £8,000 |
| Profit | £48,000 | £62,000 |
| Taxes | ||
| Corporation tax on company profit | £9,111 | |
| Deirdre’s tax | £3,933 | £12,232 |
| Deirdre’s national insurance | £500 | £3,792 |
| Additional accountancy costs | £1,000 | |
| Total | £14,544 | £16,023 |
Example 2: Income increases, and pay a family member as a director/shareholder.
Once Deirdre’s income goes over £80,000, if she continues to take all of the cash from the company each year, the tax payable with a limited company will be similar to if she was self-employed.
However, she has a spouse who will also be a director of the company. Her spouse earns £35,000 per year.
As you can see below, in this situation having a limited company could save her £3,500 in tax.
She also has the flexibility to leave some of her money in the company bank account. This will reduce her personal tax further. If she reduced the cash she takes from the company to £50,000 for herself and £12,500 for her spouse, this would save her a further £10,000 in tax and also entitle her to continue to receive her Child Benefit.
This would mean that at the end of the year, after paying expenses and taking salaries and dividends, there is still £30,000 in the company’s bank account that she hasn’t withdrawn for personal use. There are a number of options for this cash – leave in the company as savings, make payments to a personal pension, make an investment, etc
| Company | Self-employed | |
| Turnover | £120,000 | £100,000 |
| Salaries for Deirdre and spouse | £25,000 | |
| Other expenses | £9,000 | £8,000 |
| Profit | £86,000 | £92,000 |
| Taxes | ||
| Corporation tax on company profit | £19,000 | |
| Deirdre’s tax | £13,390 | £34,630 |
| Deirdre’s national insurance | £4,790 | |
| Spouse’s tax | £2,510 | |
| Additional accountancy costs | £1,000 | |
| Total | £35,900 | £39,420 |
