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I have a friend who has said my business would benefit from being a Limited Company. Are they right? - news article image

I have a friend who has said my business would benefit from being a Limited Company. Are they right?

22 Mar 2018

2 minute read

There is no set answer to this as it is entirely dependent on your circumstances and the industry you operate in. It is fair to say that the tax efficiencies of owning a Limited Company have been chipped away at in recent years, however, there are still tax efficiencies out there for many Sole Traders / Partnerships by operating as a Limited Company.

Sole Trader / Partnership accounts which form the basis of personal tax returns are generally simpler and the cost of preparing these is broadly less if you ask an accountant to prepare them. By preparing accounts and personal tax returns in this way, no information is filed on the public record – the only other organisation this information is shared with is HM Revenue & Customs.

However, it is important to be aware that there is no legal distinction between the business and the individual. This could mean that your personal assets are liable should something go wrong with the business.

One of the downsides to operating as a Sole Trader or Partnership is that the rate of personal tax is higher than compared to the tax rate on dividends distributed by Limited Companies. The rates of income tax for a basic / higher / additional rate tax payer are as follows: 20% / 40% / 45%. Compare this to the rates of tax on dividends: 7.5% / 32.5% / 38.1%.

In contrast, a Limited Company has to publish certain information on the public record. The information on the public record is fairly minimal and no significant amount of information can be derived from its publication.

There are many businesses out there which aren’t set up in the most tax efficient manner or set up in a way which suits the needs of the business owner(s). We’ve met many people who think having an accountant will break the bank and haven’t thought about the cost efficiencies they could identify. In the vast majority of cases we are able to assist individuals and businesses through our expert knowledge and pro-active advice.

Tax legislation is forever evolving and what was perhaps good advice 2 / 5 / 10 years ago isn’t necessarily going to serve you well now. A new tax year began on 6 April 2018 – now is the perfect time to assess if your business is in a good place going forwards.

I have a friend who has said my business would benefit from being a Limited Company. Are they right? - news article image

For a non-committal meeting to discuss your options, contact Gary Hamilton on 01865 292200 or gary.hamilton@shawgibbs.com

Author:

Gary Hamilton

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