Pictured above: David Bradshaw
The reduction in corporation tax rates should give
unincorporated business owners such as sole traders and partners
food for thought; says David Bradshaw, Partner at Birmingham based
Dains chartered accountants and business advisers.
If you are a higher rate tax payer operating as a sole trader or
partner, you may find that it would be beneficial to incorporate
your business as a limited company to take advantage of the
preferential corporation tax rates (i.e. 20% to 26% instead of 40%
or 50%) In addition, income from companies can be derived by way of
dividends which, attract lower rates of tax and are not subject to
national insurance.
David continues: "Business incorporation has become synonymous
with responsible business ownership. Yet, so many misconceptions
and rumours exist about the benefits of business incorporation. So
it's no wonder that even the savviest entrepreneurs are at a loss
as to whether incorporation is right for them, what it will cost,
and where to start.
"There are many non-tax advantages to incorporating a business
as a limited company, such as limited liability for the directors
and shareholders, 'commercial respectability' and more options in
terms of borrowing due to the fact that companies can create
floating charges over their assets. However, incorporating and
running a limited company is subject to compliance obligations
(e.g. the requirement that accounts are filed annually at Companies
House) and therefore the savings that may be gained by
incorporating may not be as great once these administration charges
have been deducted. Choosing the right business structure for your
small business comes down to several factors such as your risk of
liability, your tax obligations, business objectives, and so on.
Because the needs of every business are different, it's worth an
hour or two with a business adviser to investigate all of the
issues that will affect your decision."