This is a question every business owner will ask themselves at some point and it’s worth thinking about because today, in 2017, the tax advantages of a Limited Company compared to an unincorporated business are less than they were and are set to reduce further.
Running a Limited Company is more complex than operating as a sole trader or partnership as it includes more regulation around your accounts, strict procedures for withdrawal of funds for personal use, and a separate tax return for the company whilst your own tax returns continue as before. In my opinion there have to be good reasons to take on these additional costs.
There are two reasons for definitely becoming an incorporated business;
Equally there are reasons why incorporating may not add too many costs to your business;
If you are making losses in a sole trader or partnership business these can be offset against your current income in the same tax year, or carried forward against profits in future years in the business, or, if you are in your first three years of trading, carried back against tax you’ve paid in earlier years.
You will have sufficient drawings from your Limited Company against which to offset the losses you have accumulated as an unincorporated business.
A Limited Company has to make profits to distribute dividends. If that is not possible you could end up paying not only tax and employees national insurance on director and shareholder salaries but employers national insurance too. A combined tax rate of a whopping 45.8%!
If none of the above apply to you then look to see if you would benefit from some tax and national insurance savings which would make the extra effort and discipline in running your business through a company worthwhile.
If you receive rental income from a furnished residential letting then you’ll be aware of a “Wear and Tear” allowance, eligible for use against your properties. This allowance recently saw a change to its terms, read below for more details.
Employers need to budget for increases from April 2018 in the compulsory pension contribution for their employees. Now is the time to plan for this.
If you’re a residential property landlord, then don’t miss out on these tax relief options available to be used against your rental income. Read on to find out more.