"Going limited" affords the protection for you and your family of limited liability. It also shows potential customers, banks and suppliers that you are serious about your finances.
There are also tax advantages to incorporation. For basic rate taxpayers, sole traders pay tax and national insurance on their profit at the rate of 29%. Whereas by putting your business through a limited company tax would be charged at the rate of 19%.
No national insurance is payable if salaries paid through a company are restricted to the lower profits limit.
In the tax year 2016 / 17 the so called ‘dividend tax’ was introduced. Dividends in excess of £5,000 were taxed at 7.50% at basic rate (32.50% higher rate). In 2018 / 19 the threshold for dividend tax was reduced to £2,000. However, the additional tax will be mitigated to some extent by the planned reduction in corporation tax rates from 19% in 2019 to 17% in 2020.
It is likely that incorporation will still generate tax savings albeit at a lower level. The amount you save will depend upon your personal circumstances.
Another advantage of incorporation is that in the event of bankruptcy the company’s creditors can only make claims on the company’s assets and not on your own personal assets, such as your house.
For those planning their pension provision the company can get tax relief of 19% on any pension contributions paid on your behalf. On retirement, any funds built up in the company can be paid out as dividends or as a capital sum. The latter will attract capital gains tax at the preferential rate of 10%.
I charge £175 to incorporate a business, issue the shares and write up the company’s combined company register.
I provide a registered office for your company and deal with Companies House for you.
Finally, I provide payroll and pension auto enrolment services for my company director clients and their staff.