There are many reasons why small business owners choose to incorporate. Often it's for tax saving purposes, but there are many other benefits as well as some drawbacks to consider. Thankfully, a Limited Company Accountant like us here, at Xtract Accounting, will be on hand to explain everything to you.
THE KEY DIFFERENCES
Let's look at some of the key differences between trading as a Sole Trader, Partnership or Limited Company.
Business and owner are one and the same.
Owner is responsible for the business and it's debts.
Business losses are paid for out of the owners own pocket (i.e. unlimited liability).
Owner is solely responsible for paying taxes on all profits.
A business with two or more owners.
Partners share responsibility for the business and it's debts.
Business profits and losses split between partners according to their pre-agreed ownership share (i.e. unlimited liability).
Partners solely responsible for paying taxes on their share of business profits.
An organisation which runs a business.
Separate legal entity to you.
You run the business as an officer/employee.
Separate finances, including any debts (i.e. limited liability).
Company pays Corporation Taxes on its profits.
You pay Personal Tax on Salary and Dividends received from the company.
MORE BENEFITS OF INCORPORATION
Below are some further benefits of trading through a Limited Company instead of as a Sole Trader or Partnership.
Corporation Tax rates are often lower than Personal Tax rates. Therefore, and depending on your personal circumstances, there could be significant tax saving opportunities.
You will have reduced risk if things go wrong as the debts of the business remain separate to yours personally (i.e. limited liability).
A Limited Company offers greater opportunities and flexibility for tax efficient profit extraction.
A business trading as a Limited Company tends to convey a more professional image.
The company name is formally registered at Companies House, providing your business with a unique identity that cannot be used by other Limited Companies.
Why not give us a call to discuss your options?
We will gladly answer any questions you may have and we’ll even provide you with an estimate of your possible tax savings.
Why wait? Contact us today.
Alternatively, learn more about the benefits of our all-inclusive, fixed fee monthly Accounting and Tax Advice service, which will include our Company Formation service and our Registered Office Address service absolutely FREE!