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.

Some superheroes drink a potion,take a pill,utter some magic words. I put my fingers on a keyboard and become STUPIDMAN.

I am currently reading free chapters of new e-book "Internet Profit Pearls" (IPP). I understand explanations of why some popular strategies don't work and advantages of some lesser used,yet cost effective methods. My problem is implementing tactics. But apparently I'm not alone.

One tactic is creating a "junk" email address. I went to a free email service and thought Stupidman needs an email address. Guess what? Stupidman was taken, in fact first three versions were taken. I finally secured a version but even creating an email address does not come easy for me.

Downloading book was easy(at least it was with Winzip) but then IPP says I have to make a copy. Never having made a copy my blood pressure begins to rise, but there is a link to a tutorial site and a brief description of steps for copying. Wanting to delay inevitable and avoid becoming gaseous dog(see previous articles) I click tutorial.

Remembering we have Windows 98, I select it, then "getting started" and......get old "the page cannot be displayed notice". (Sometimes I think this is a cookie that attaches to me rather than a computer.) After two more attempts I give up and return to IPP.

For those of you who know what you are doing, this next passage is really boring and is intended for soul mates of Stupidman.