I am self-employed and expect to make around £50,000 profit this year. I currently take most of my income as drawings, but with dividend tax rates increasing to 10.75% for basic-rate taxpayers and 35.75% for higher-rate taxpayers from April 2026, I am wondering whether I should consider incorporating. Would incorporating and taking (say) a £12,000 salary plus £30,000–£35,000 in dividends be more tax-efficient than remaining self-employed? Or, given the additional costs and responsibilities of running a limited company, is there now less benefit to incorporating?
Arthur Weller replies:
According to the straightforward scenario that you have described, your net income will be higher if you stay self-employed. This takes into account: (a) income tax; (b) self-employed National Insurance contributions (NICs); (c) corporation tax; (d) employer NICs; and (e) dividend income tax. But there are other factors to consider. For example, in favour of incorporation: (1) whether you decide to withdraw less annual money from the company; (2) whether the company makes employer pension contributions on your behalf; (3) whether the company will have another employee and consequently can qualify for employment allowance; (4) limited liability; (5) the possibility of business profits increasing above £50,000; and (6) certain other factors. Against incorporation: (i) additional cost and extra work in running a company; (ii) the cost and extra work in transferring the business into a company.
