I meet lots of smaller business owners on a regular basis that have taken the plunge and set up their own businesses. By default, they will trade as sole traders. They will pay income tax on their profits over £10,600, normally at 20%, and also Class 4 National Insurance on their profits over £8,060 at 9% together with £2.80 pw in additional Class 2 National Insurance It is a common misconception that you have to pay National Insurance (your NI stamp to some other people) in order to receive state benefits e.g. State Pension, sick pay, SMP etc. It can be more tax efficient for smaller businesses to trade as limited companies rather than as sole traders. You then become a director-shareholder-employee of your own company. You should then take a mixture of salary and dividends, for tax efficiency, to withdraw your profits from your company. For most small businesses there will be no tax to pay on their dividends and their salary can be set at a level to not pay any income tax or National Insurance. However, from 6 April 2016, dividends over £5,000 pa will attract a 7.5% dividend tax for a basic rate tax payer. So long as your salary income from your company is over £5,824 and less than £8,060 you will receive some of the basic state benefits e.g. sick pay from your own limited company that the government will fully repay to your company i.e. at nil cost to you. The self-employed therefore pay more National Insurance and get less state benefits. The good news is that with a bit of simply tax planning you can save lots of tax, well actually National Insurance, but it’s still 'tax' to you and me. A small business owner with £15,000 of profits can save £770 by trading through a limited company. These savings are increased to £2,570 on profits of £35,000. These savings will reduce from 6 April 2016 but can still be worth trading as a limited company rather than a sole trader. It is true that operating as a limited company puts you within the grasp of more complicated company law. However, I can confirm categorically, through over a quarter of century of experience as an accountant, that it need not affect you on a day-to-day basis. Your accountant can deal with all these 'complications' behind the scenes by charging you a few hundred pounds more each year..... But you should still be saving more in tax, even after paying their fees! For a more detailed discussion of how you may be able to save tax, and protect yourself, by trading through a limited company then please contact me.