Historically there used to be a huge difference in tax liability if you operated as a Ltd company rather than a sole trade, unfortunately from April 2016 the government have closed the gap.
When considering setting up a Ltd company or transferring your sole trade into a company you will need to consider the following
Advantages
- Separate legal definition between owners and the business. Giving them protection if the company goes into liquidation.
- The company pays tax on its own profits at a lower rate than individuals.
- The shareholders only get taxed when money is drawn from the company.
- If you structure your payments from a company correctly you may pay less tax than a sole trade
Disadvantages
- Extra admin required for a company for example companies house require statutory forms to be filed
- Directors or shareholders will need to be more disciplined when extracting money from the company, a payroll or dividend vouchers may need to be created.
- Extra tax forms will be required in addition to the shareholder forms.
Each scenario needs to be considered on its own merits, please feel free to contact us for a free initial meeting for any further advice.
