Is incorporation right for my business?

Limited Companies are an alternate form of business structure to Sole Traders and Partnerships, they are very different as they are viewed as a completely separate legal entity to the owner.

This is beneficial when operating in a risky business area as any liability ends with the company and doesn’t affect non business assets like a family home.

The ownership of the company rests on the shareholders and they usually have voting power based on the proportion of the business they own, there are other types of share available that restrict voting rights or provide preferential dividends.

There are also significant tax savings that can be achieved by using a Limited Company as money can be withdrawn as dividends instead of earnings and this can lead to reduced National Insurance Contributions.

Dividends however can only be taken when the company is showing an accounting profit and there is a specific procedure that needs to be followed.

In general a Limited Company and owner will pay the following types of tax:

Corporation Tax

Class 1NIC’s (Employers & Employees)

Dividend Tax (if earnings exceed £40k)

P11d Tax on Benefits

There is usually additional red tape that comes with a Limited Company and this generally means that multiple tax returns (Corporation Tax + Directors Self-Assessment) need to be filed with HMRC and Accounts and an Annual Return need to be submitted to Companies House.

Payroll and P11d submissions can also be necessary if directors take a salary to use up their personal allowance and need to declare any non-financial benefits received like a company car.

Company accounts can be made up over any period of time and filed with Companies House however HMRC cannot accept a Corporation Tax return relating to a period longer than 12 months, this means that a set of company accounts may need to be split over two tax returns if they are longer than 12 months.

Corporation tax payments are due within 9 months of the accounting period end date.

If you would like to discuss the most tax efficient way of using a limited company for your business please contact us.

Nishi Patel

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