One million sole traders could potentially benefit from incorporating their business into a
limited company.
That's according to new research that reveals the UK's small and medium-sized businesses could be at risk of wasting £4.2 billion in National Insurance payments on their profits by not considering changing their business model.
Owners of unincorporated small businesses need to pay National Insurance contributions as a percentage of the business's annual taxable profits when their income reaches a certain level.
These payments could be avoided by incorporating the business into a limited company and taking a small salary up to the threshold at which National Insurance is payable, then taking the balance of post-tax profits as dividends, which are taxed at a lower rate.
Karen Barrett, chief executive of unbiased.co.uk, which carried out the study, says "Tax is a vast and complex subject and business owners often simply do not have the time to understand how to optimise their tax status whilst also running their business day to day."