If you are sad enough to study the HMRC ‘Rates and Allowances’ archive and compare tax rates it is noticeable how the ‘break even’ point for incorporation has fluctuated over the years such that, until relatively recently incorporation was only beneficial if the annual profit exceeded £50,000, reports Jennifer Adams.
Now as corporation tax rates are significantly lower than income tax rates all businesses need to consider incorporation whatever the profit but as the previous article (Post Incorporation: get the details right) detailed incorporation is not easy. So apart from saving money are there any other benefits to incorporation and what are the practical issues that a business needs to consider before taking the plunge?Benefits
Reduction in tax bill - this article does not intend to cover the calculation but a table of potential tax savings on incorporation for 2011/2012 can be found in Rebecca Bennyworth’s article at Tax Adviser.Practical issues
- Be careful to calculate best date for cessation of self-employment - choosing the wrong date may increase tax liability for the final year.
- Care is needed where there is the prospect of the shares being transferred or disposed of within two years of incorporation (Business Property Relief)
- IR 35 ‘personal service’ legislation issues for ‘knowledge based’ businesses.
- Company formations: what's best for you?
- Post incorporation: get the details right
- More incorporation articles and queries on AccountingWEB.co.uk
Jennifer Adams FCIS TEP ATT (Fellow) is Associate Editor at AccountingWEB. A professional business author specialising in corporate governance and taxation, she has written for many of the leading specialist providers of legal, tax and regulatory publications. Jennifer runs her own accounting and consultancy business with offices based in Surrey and Dorset.