Limited company advice

[DarrenC]

I've been in business for 3 years, and have always been put off by registering the business as a limited company because of the additional costs. I understand you have to pay corporation tax on top, are there any other costs, and what are the benefits of been a limited company, other than it secures your business name?

[I, Brian]

I know what you mean - instead of simply paying income tax, you are paying corporate tax then income tax - which as someone who just incorporated seems a little much.

However, I'm assured from other businesses that switching has saved them a heck of a lot of tax.

I guess what matters most is your tax bracket in the first place - if you have revenues in the 10-20k, then it pays to be a small trader. However, the more you are over that, apparently the more you save tax by incorporating.

[Joyous]

Hi Darren

You need to keep in mind the differences between the two taxes. Individuals pay income tax whereas companies pay corporation tax.

As Brian says incorporating your business can led to substantial tax savings. This is because as a sole trader you're taxed at 40% on taxable income above £32,400. As a company, profits up to £300,000 are generally taxed at 19% with no corp tax at all payable on profits less than £10,000.

The tax saving is the most common reason I've seen for businesses wanting to incorporate but as with most things in life there are pro's and cons.

Regards

Joy