If you are thinking of starting a business, or are already self-employed, you may have considered running a Limited Company, indeed this may have been recommended to you.
There are clear tax advantages in running a company as opposed to being self-employed as a sole trader or partnership, although recent sensational headlines from HMRC and others and the current confusion between tax avoidance (legal) and evasion (illegal) may well have just served to confuse the issue.
If we set aside the issue of company cars (seldom a good idea from the tax perspective), then minimising your taxation by using a company is both legal and in many cases the sensible course to take; however there are other commercial reasons why a limited company might be the right structure to use:
It is relatively simple to bring other investors into the business by issuing or selling shares
There is often an easier exit from the business by being able to sell your shares in the company
A company provides you with the benefits of limited liability, protecting your house and other personal assets
You can leave money in the company until you need it and only withdraw funds when you are able to do so at a lower tax rate
There is still the perception (misconceived) that a Limited Company is a more stable trading partner than a sole trader, and often it is easier to open new customer accounts and supplier credit as a Limited Company
Banks (when they have money) are able to take extra security by a ‘floating charge’ over a company’s assets giving them added security
The company can establish pension schemes which may provide greater benefits than self-employed schemes.
But there are pitfalls.
Directors have legal responsibilities and you need ensure you understand these. Accounts must be filed and deadlines met at Companies House and with HMRC. The Company’s bank account must be kept separate from your own and if you use it incorrectly there can be serious tax implications. So you do need to consider all the pros and cons carefully.
Having weighed-up the commercial considerations potential tax savings can then be considered, although tax rates and rules do change regularly. We welcome the opportunity to talk to you about your personal circumstances and show you the tax implications of incorporating as well as going through the other considerations in more detail. Please contact your local Burgis & Bullock office for more information.