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There are lots of benefits of becoming Self-Employed, ranging from a better work/life balance to setting your own financial worth. The benefits often make the effort worthwhile for many aspiring entrepreneurs, however in order to fully weigh up the pros and cons we first need to understand the differences between a permanent employee and a freelancer.
You’ll pay tax and NIC on all your earnings under PAYE.
You get to deduct the cost of business expenses from your business income. You’ll pay two types of NIC depending upon the level of your income and income tax on your net profits. Any non-business expenditure you incur won’t be allowable for tax.
Your company is able to deduct business expenses including pension contributions and salary paid to you as a director. It will pay Corporation Tax on net profits.
As a director of your limited company you can opt to pay yourself a salary from the business. The amount and frequency of salary is entirely your choice and can be changed at any time.
As a shareholder of the limited company you would also be entitled to receive any dividends which are distributed by you in your capacity as director. Once paid dividends will be taxable as income in your hands as a shareholder.
As an employee your company can fund benefits for you but they may be taxable in your hands.