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 an example of how much tax you could save.
Example
Deirdre has £100,000 income before expenses and is considering whether to be self employed or use a limited company. She has a spouse who will also be a director of the company if she decides on this option. Her spouse earns £35,000 per year.
As you can see below, having a limited company could save her £10,000 in tax. Deirdre has only taken £50,000 for herself and £10,000 for her spouse from her company in salary and dividends, so that neither she nor her spouse pay higher rates of tax. Personal income over £50,000 would be taxed at the higher rate, and would also mean she would start to lose Child Benefit if she was claiming it.
This means that at the end of the year, after paying expenses and taking salaries and dividends, there is still £16,000 in the company’s bank account that she hasn’t withdrawn for personal use.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 | £100,000 | £100,000 |
| Salaries for Deirdre and spouse | £17,500 | |
| Other expenses | £9,500 | £8,200 |
| Profit | £73,000 | £91,800 |
| Taxes | ||
| Corporation tax on company profit | £13,870 | |
| Deirdre’s tax | £2,663 | £24,220 |
| Deirdre’s national insurance | £4,640 | |
| Spouse’s tax | £1,750 | |
| Total Tax | £18,283 | £28,860 |
Additionally, if Deirdre claims Child Benefit, she will also save £1,095 for her first child and £725 for each additional child. This is because once your personal income goes over £60,000, you are not entitled to any Child Benefit payments.
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