Going Limited

"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 may also be tax advantages to incorporation. For basic rate taxpayers, sole traders pay income tax and class 4 national insurance on their profit at the rate of 29%, plus class 2 national insurance.  Whereas by putting your business through a limited company tax would be charged at rates between 19% and 25% depending on the level of company’s profits.

The other main advantage of incorporation is that an income tax charge only arises when profits are extracted from the company as dividends. This allows shareholders to smooth their income and is extremely advantageous for tax planning purposes. A sole trader on the other hand pays tax (and potentially higher rate tax) on all profit earned. This could be an issue in view of the freeze in personal allowances.

No national insurance is payable if salaries paid through a company are restricted to the lower profits limit. 

Dividends in excess of £1,000 are taxed in your self-assessment tax return at 8.75%. However, taking your personal and business taxes as a whole it is likely that incorporation will still generate tax savings. The amount you save will depend upon your personal circumstances. I will guide you through the processes required for extracting profits as salaries, dividends, pension contributions, vehicle expenses and loans. 

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 your own personal assets, such as your house. 

For those planning their pension provision the company can get immediate tax relief of between 19% and 25% on any pension contributions paid on your behalf. Pension payments made by the self employed are not relieved against taxable profit but are instead ‘grossed up’ by the Government for investment by your pension provider. (However higher rate tax relief is given in your tax return for self employed pension contributions.)

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 a one off fee of £175 to incorporate a business; prepare the company’s combined company register; issue the shares and notify HMRC for corporation tax purposes. I also provide a registered office for your company and deal with Companies House for you.

Finally, I provide payroll and pension auto enrolment services (NEST) for my company director’ clients and their staff.