When setting up a business, one of the first big decisions is choosing the right structure. In recent years, the gap between operating as a Ltd company and as a partnership or LLP has narrowed, especially when it comes to tax savings. In fact, the pendulum has swung in favour of partnerships and LLPs for many, but there’s more to consider than just tax—ownership, financing, and your business goals all play a part.
How Do the Numbers Stack Up?
We’ve crunched the numbers to compare taxes and take-home pay for Ltd companies versus partnerships/LLPs at different profit levels:
- At £50,000 profit: A Ltd company edges ahead, but only just—by £468. However, once you factor in other company costs, this small advantage can quickly disappear.
- At £100,000+ profit: Partnerships and LLPs start to pull away, offering higher net take-home income. This is mainly because Ltd companies face double taxation—first corporation tax, then dividend tax. The tax burden for Ltd companies rises even more sharply on profits over £250,000, as marginal relief is withdrawn.
Salary or Dividend: Which Is Better?
For those running a Ltd company, the choice between taking income as salary or dividends is crucial. Generally, dividends win out—they’re taxed at lower rates and aren’t subject to National Insurance, so you keep more of what you earn. That said, the gap is narrowing, especially with upcoming increases in dividend tax. It’s also worth noting that our comparison doesn’t factor in pension contributions or the corporation tax already paid to generate profits for dividends.
What’s Changing for Dividends After the Autumn 2025 Budget?
From 6 April 2026, dividend tax rates for the basic and higher rate bands will rise by 2 percentage points. The additional rate band remains unchanged. This means the net benefit of taking dividends will shrink, with take-home pay dropping by about 1–2%, depending on the amount of dividends you receive.
In summary: The best structure for your business isn’t just about tax—it’s about what fits your goals. But if you’re weighing up the numbers, partnerships and LLPs are looking increasingly attractive at higher profit levels, and the dividend advantage for Ltd companies is set to narrow further in the coming years.
The information provided in this guide is intended as a general overview to help readers understand the key measures introduced in the UK Budget 2025. It does not claim to be exhaustive and should not be relied upon as a substitute for tailored professional advice. If you have any questions or require specific guidance, please
speak to one of our experts.
