Employment vs. Self-Employment vs. Limited Company: Which Path Fits You Best?

Whether you're launching a business, freelancing full-time, or considering a switch from PAYE, understanding the differences between employment, self-employment, and running a limited company is essential. Each route offers unique benefits, obligations—and tax implications.

Let’s explore what sets them apart.

Employment: Stability and Simplicity

Benefits:

• Regular salary paid through PAYE

• Employer pension contributions

• Paid holiday, sick leave, and parental leave

• Legal protections like redundancy pay and unfair dismissal rights

• Easier access to mortgages and credit

Obligations:

• Fixed hours and location

• Limited control over workload or clients

• Tax and NI deducted automatically

• Must follow employer policies and procedures

Tax Overview:

• Income Tax: 20%, 40%, or 45% depending on income

• National Insurance: 12% on earnings over £12,570, then 2% above £50,270

• All deductions handled by employer via PAYE

Self-Employment: Freedom and Responsibility

Benefits:

• Control over hours, clients, and pricing

• Tax-deductible business expenses

• Lower NI contributions

• Potential for higher earnings

• Creative freedom and personal branding

Obligations:

• Must register with HMRC and file Self Assessment

• Responsible for own tax and NI payments

• No statutory sick pay, holiday, or pension

• Irregular income and financial risk

• Must manage marketing, admin, and compliance

Tax Overview:

• Income Tax: Same rates as employment

• National Insurance:

  • Class 2: flat rate (£3.45/week)

  • Class 4: 6% on profits over £12,570, then 2% above £50,270

• Tax paid via annual Self Assessment

Limited Company: Strategic and Scalable

Benefits:

• Separate legal entity

• Potential tax efficiency via salary + dividends

• Limited liability protection

• Professional image and credibility

• Easier to scale or sell

Obligations:

• Must register with Companies House

• File annual accounts and Corporation Tax returns

• Maintain accurate records and meet director responsibilities

• More admin and costs than other options

Tax Overview:

• Corporation Tax: 19% or 25% depending on profits

• Dividends: Taxed at 8.75%, 33.75%, or 39.35% after £1,000 allowance

• Director’s salary: Subject to PAYE and NI

• VAT: 20% standard rate if registered

So, Which Is Best?

It depends on your goals and preferences:

If you value:

• Security and simplicity → Employment

• Flexibility and autonomy → Self-employment

• Tax efficiency and scalability → Limited company

At Accounted 4 Tax Ltd, we help you weigh the options, understand your obligations, and choose the structure that fits your lifestyle and ambitions. Whether you're just starting out or ready to evolve, we’re here to guide you with clarity and confidence.

Thinking about switching or unsure which path suits you best? Let’s chat.

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