When we look at taxes for sole traders and limited companies, there are some important differences to understand.

1. Tax Rates:

• Sole traders pay income tax on the money they earn. This tax can be anywhere from 0% to 45% based on how much money they make.
• Limited companies pay a different kind of tax called corporation tax, which is set at 19% for their profits. This can be better for people who earn a lot of money.

2. National Insurance Contributions (NIC):

• Sole traders need to pay Class 2 and Class 4 NICs, which are based on how much money they make.
• Limited companies pay NICs on the salaries of their workers, but they don’t pay them directly on the company’s profits.

3. Dividends:

• If you own a limited company, you can take some of the profits as dividends. The tax on dividends is lower up to certain amounts, which can help you save on taxes.

For example, if a sole trader earns £50,000, they might pay more in taxes than a limited company that makes the same amount of money.