Sometimes it can seem confusing, should you trade in your own name as self-employed or should you incorporate a company.

Here is a simple table to show you the differences:

 Limited company  Self-employed
Director’s salaries are paid under PAYE and depending on the salary paid and so employees national insurance and income tax will need to be deducted.  As someone who is self-employed you can use all the income and profits of the business; it is your own money.Class 2 national insurance is paid at a flat rate.
Employers national insurance may be due. No employers national insurance is paid by a self-employed.
Company profits are charged to corporation tax.  The small company rate of 20% applies to profits up to £300,000 Profits are charged to income tax at a rate that increases with profits.  The rate starts at 20% and increases to 40% and 50%.Profits are also subject to class 4 national insurance of 9% which reduces to 2% on profits over £42,475 (in 2012-13).
Many perks or benefits are subject to income tax and national insurance.  Perks and benefits are taxed as drawings from the business and are treated in the same way as profits subject to income tax and national insurance.
Dividends can be paid out of the profits of the company. The self-employed cannot pay dividends.
Company money is distinct from personal money and money can only be taken out of the company as salary, reimbursement of expenses or as a dividend. There is no legal difference between the business money and your own.
Some tax reliefs such as goodwill, research and development and intellectual property are only available to companies. These reliefs are not available to the self-employed.
Directors are entitled to some state benefits such as maternity leave, job seekers allowance (soon to be replaced by universal credit) and state second pension. The self-employed are not entitled to the same state benefits as they pay national insurance at a lower rate.
If you want to raise funds schemes such as Enterprise Investment Allowance and Seed Enterprise Investment Scheme are available. These schemes are not available to the self-employed.

You may find the information in my article “Should I be self-employed or set up a limited company” also helpful.

You can also compare how much tax you will pay using our tax calculator