As a sole trader or partnership, you may be wondering if now is the right time to incorporate your business and trade through a limited company. The decision involves weighing up tax benefits, legal protection and administrative obligations.
Some key considerations:
- Tax rates: Company profits are taxed at Corporation Tax rates, currently starting at 19–25%, which may be more favourable than Income Tax at higher personal rates.
- Profit retention: A company structure gives more flexibility to retain profits or pay dividends.
- Limited liability: Incorporation can protect your personal assets if the business incurs debts or legal claims.
- Pension and investment planning: Limited companies may offer greater scope for pension contributions and structured remuneration.
However, there are also downsides:
- You’ll face more admin and regulation, including Companies House filings and director responsibilities.
- Extracting cash from a company requires careful planning to avoid additional tax charges.
- There are likely to be immediate tax consequences when transferring business assets to a company
- There are particular issues and complexities about incorporating a property business and specialist advice is essential to prevent potentially huge tax problems.
Incorporation is a strategic decision, not just a tax one. If you’re thinking about taking the next step, our team can help you model the outcomes and make the right move at the right time. Contact your usual Beavis Morgan adviser or email info@beavismorgan.com to arrange a discussion.
