The answer is that from a tax point of view, it is advantageous to trade through a limited company as long as income is drawn from company by owners as dividends from their shares and amount of dividends drawn is restricted below 40% band rate (i.e. œ31,063 for tax year 2002/03). That way, owners have no further personal tax ("income tax") to pay. Moreover, dividends are not subject to national insurance contributions. This is excellent news of course. But, if dividend income falls within higher rate bracket of income tax (i.e. above œ34,515), they will be taxed at 22.5% on excess, which of course will increase tax burden. The company profits are subject to corporation tax rates. Those are lower than income tax rates.

The most catastrophic scenario is when director takes his reward from company as salary. Then his/her salary is taxed at income tax rates (like a sole trader's income). That is because, unlike sole traders, tax system treats companies as separate from their owners because a company is a separate legal entity. The problem is that income taxes are higher than corporation tax rates. On top of that, they will be subject to employee and employer national insurance contributions, which of course increase tax burden and render his position worse than even an unincorporated business ("sole trader"), because NIC Class 1 on payroll are higher than NIC Class 2 paid by self employed.

In contrast, a self employed person ("sole trader") is taxed at income tax rates on profits from his business, which are added to his other sources of income. As it has already been mentioned, income tax rates are overall higher than corporation tax rates. On top of income tax, national insurance contributions class 4 are payable on business profits within a specified band (7% on profits between œ4,615and œ30,420). National insurance contributions Class 2 are also paid by self-employed people, although those are lower than those payable by company directors on their salaries.

To illustrate above, let's take a simple example. We have a limited company and a sole trader. They both make œ60,000 profits each in tax year 2002/03. We assume that company director takes a salary equal to amount of his personal allowances (untaxed income) of œ4,615 and balance as dividends. The company will pay corporation tax at 19% equal to œ10,523 and nothing else. The sole trader will pay income tax œ16,542, National insurance Class 2 œ104 and National insurance Class 4 œ1,806. Total œ18,452. The bottom line is that person that has incorporated his business into a limited company will make a tax saving of œ7,929 compared to a sole trader! Isn't that fantastic?

Somebody might be wondering: why is this entire happening? The official explanation is that, this government, to help economy grow, encourages people to leave as much profits within their businesses to be reinvested, instead of being taken out and spent.

Is it possible to make a six figure income working from home?

YES!.

Is it possible to enjoy more freedom in your schedule, own your own business, fire your boss, and all of other work from home fantasies?

YES!

Can you do it?

Well, now that one's not as easy to answer. I can't solve that riddle for you. I CAN, however, let you know what working from home really involves so you can make that decision for yourself.

MAKING CHANGES

In some respects, working under a supervisor is a life of ease. You have certain responsibilities, and you take care of them, but that's as far as it goes. Working your own business is NOTHING like that. All decisions are yours to make, all work is yours to do, and all success and profit OR mistakes and failures will be yours as well.

Working your own business not only requires a change in what you are doing, but in how you think. No longer will luxury of 'letting someone else handle it' be around. You have to step up your level of responsibility if you want to succeed.

DESIRE

Sure, everyone desires more money, a better house, more time off, a nicer car, and all that. However, there is a BIG difference between sitting on couch saying, "I wish I had a car like that," and having desire to take ACTION necessary to earn money for car of your dreams.

There is work that will need to be done. It's NOT going to just happen upon a wish. The kind of desire it takes to make it while working from home is a constant ACTIVE desire, not just a passive want.

COURAGE