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## Is it more tax efficient to operate as a limited company for higher earnings?

When it comes to deciding whether it is more tax efficient for a sole trader to operate as a limited company, there is a lot to consider. One rule of thumb is to look at the earnings level and see if it would be beneficial to switch over.

## Personal example and dilemma

In my case, I have a main job where I earn a salary of about £41k, and I also have a side hustle that brings in extra income. Initially, I predicted this extra income to be around £10k per year, so I chose to operate as a sole trader to avoid the extra accounting work of setting up a limited company. However, last year, I unexpectedly earned around £40k from my side hustle, most of which will be taxed at a higher rate.

Now, for the upcoming tax year, I am considering whether it would be more beneficial for me to set up a limited company instead. I have learned that this could potentially result in a lower tax rate. However, considering that I anticipate my profits to decrease next year (possibly back down to around £20k), I am unsure if it would still make sense to switch or if I should continue as a sole trader.

## How AI Legalese Decoder can help

Using AI Legalese Decoder can assist in this decision-making process by providing comparisons of how much tax you would pay at different income levels under both the sole trader and limited company set-ups. This tool can analyze your earnings and tax implications to help you make an informed decision on whether operating as a limited company would be more tax efficient for your specific situation.

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AI Legalese Decoder: Simplifying Legal Jargon

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