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LIMITED OR SELF EMPLOYED? The two main reasons for incorporation are limited liability and it can be more tax-efficient. Limited liability basically means the debts are the company’s – not yours. As a sole trader, you are personally liable. As a director you take money out of the company as a mixture of salary and dividends. Crucially, you do not pay income tax on dividends up to the dividend allowance threshold of £2,000. Dividend income over the dividend allowance threshold is taxed at the rate applicable to your income tax band (7.5% basic rate, 32.5% higher rate or 38.1% for additional rate tax payers). There is no national insurance paid on any dividend income. So this means that you could pay less in tax by using a mixture of dividends and salary. Some think that being a limited company involves paying much higher accountancy fees, but this isn’t always the case. COULD I PAY MORE TAX AS SELF EMPLOYED You could, which is why it is worth getting a qualified accountant to check, ideally on an annual basis.