There are 3 tax advantages for small Limited Companies over Sole Traders and Partnerships. There is no National Insurance to pay on Dividends, but 8.75%  tax is due after the first £2,000 is paid out. You pay income tax on dividends only when you take out the money rather than when it is earned – which means more flexibility.  Thirdly, to avoid Higher Rate Tax, you can split the dividends with your lower earning spouse/partner to reduce the tax on you.