Incorporation - why bother?
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?
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.
- 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 is a freelance writer and author specialising in tax and company secretarial issues. She can be contacted at Abacus Business Solutions. The information contained in this article is intended to provide for general educational use and information only. It is not intended to advise or recommend any particular course of action or opinion. The reader should not act or rely on any information contained therein without seeking independent legal advice.