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Being an Employee Vs. Having Your Own Business

If you’re thinking of starting your own business and are concerned for the risk, the unknown and initial dip income, consider the fundamental difference of how you are taxed.

If you are an employee, your tax, national insurance, benefit in kind tax and student loans are taken before you get your money. The government is paid before you. The irony of a payslip is that you even get to see the ‘gross’ figure, because you never get to see the gross figure. Roughly 30% to 50% of ‘your’ money isn’t yours. You don’t even get a chance to touch it for a fleeting second before it sinks into the state coffers.

If you are a business owner, you get all the income first, and you pay tax later. You bring in income through a transaction, and 100% of it goes into your [company] bank account. You even add 20% VAT [in the UK] on top, and get to ‘look after’ that for the government for up to 3 months.

Of course as a business you are charged corporation tax, employers national insurance, business rates, other duties and then you are taxed ‘personally’ when you draw income. However, you get many off-settable tax reliefs as a business owner, likely because 99% of all state wealth generated is private wealth and not public wealth.

So you need an incentive to want to set up shop and run your enterprise. You can run many of your affairs as a legitimate business expense off-setting many capital and income expenses against your income to reduce your declared profit and therefore tax bill.

Because you pay tax later you can earn on the preserved capital, and as a legitimate and important function of business get expert advice on how to reduce your tax bill for your company and yourself. Many of your capital purchases, travel, subsistence, education and other expenses can be off-set. By the time you come to pay the tax, in arrears, you could have saved half or more compared to being an employee.

If you compound that over a few decades it’s likely to be a six to eight figure sum.

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