Limited company or partnership: which is best?

Inspired by yet another posting on the subject of incorporation. AccountingWEB decided to comission a guide to help you with this challenging and common issue. Nick Antoniou of Smith & Williamson highlights the pros and cons.

The choice of legal status for your business is a complex one and is dependant on a number of tax, commercial and legal considerations, which impact on the business for many years to come.

Continued...

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Comments

Goodwill - no tax relief on goodwill purchased from a

Taxi | | Permalink

connected person.

Sole traders v. Ltd Cos, I find that a Ltd co is the safer bet (providing the client recognises that a company is a separate legal entity). One pays less tax, and once you have set up correctly, it is easier to manage.

A further major advantage is in respect of investigations. As a director of a limited company, you will only suffer an investigation into your personal tax return. The full "books and records" inspection is suffered by your company, and provided that you have not used your company as a personal bank account, this makes the whole process cleaner and easier.
OK, so there are PAYE issues, again it is just a matter of good housekeeping.

As to LLP's, well I understand when traditional partnership want them - GPs, Architects etc, but again, I think many of them would be more suited to a Ltd Company.
Finally, LLPs are soon going to be accounted for like companies. Terribly confusing for clients, who I think find the whole LLP thing rather cumbersome.
Most accountants, I wager, would really rather stick to the tried and trusted Ltd Co. vehicle.

Re message from Alistair Kennedy

martin.alan-day... | | Permalink

Can companies write off purchased goodwill when it is transferred from a sole-trader or partnership?! It is still purchased by a ltd co but no tax relief is available as far as i am aware

Capital issues - Ltd v partnership

AnonymousUser | | Permalink

The article is v. light on technical content. The argument for lower taxes in Ltd co provided income is taken as dividend & not salary is well rehearsed. What is not mentioned is the loss of 100% BPR where individuals retain a property that is used in a ltd co. Also ltd cos can write off purchased goodwill which partnerships cannot.

missing the point??

stephenkendrew | | Permalink

Surely the main reason many have gone down the incorporation route has been to reduce their tax liabilities.

In the example quoted, a limited company could make a profit of £77,988 (i.e. 22% less than the partnership) and the directors/shareholders still take home £65,030 if salaries are paid to the (two) directors of £4,895 with the rest of the profit taken as dividends - total tax liability £12,958!

Company v. Partnership the only choice?

AnonymousUser | | Permalink

Presumably this well-presented comparison of companies versus partnerships was written for the non-technical browser. If so, doesn't the absence of mention of the sole trader option mislead?

Incorporation fee?

JDBENJAMIN | | Permalink

Since when has there been a £250 fee to incorporate a company? Does Nick Antoniou actually mean that his own firm charges this for a formation?

Limited Liability

AnonymousUser | | Permalink

As a matter of course, these days, I advise all my clients to go Ltd.
With compliance set to increase, HMRC wanting all self-employed on the payroll plus all the normall trade risks there really can be no other option.
I have been in the profession for forty years and up untill a few years ago I would have looked at all the options so I haven't taken this decision lightly. I have not seen or heard of one arguement that persuades me otherwise and I have a very open mind.