Why not limit your liabilities and keep more of the profits?
Trading as a limited company will provide a number of tax planning options with limited liability status. As a limited company you will lose some of your privacy. Directors and shareholders personal details and the company's abbreviated accounts have to be filed on a public record at Companies House.
A limited company is a legal entity that is able to enter into contracts in it's own name. This is important as it means that all the company's liabilities belong to, and are the responsibility of the company. They do not belong to the directors and shareholders. The only exception to this is if you, as director of the company, offer a bank or other creditor a personal guarantee to repay the company's debt, if the company cannot.
1. Limited liability status - as explained above this can protect your personal assets from business creditors if for any reason the company has to cease trading and is unable to clear all its debts. This protection is especially useful if there are significant risks associated with your business activity.
1. Possible double taxation - as the company pays its own tax on profits and gains, it can only distribute what is left, the retained profits, to directors and shareholders. This can give rise to tax being paid both by the company and by the directors or shareholders when they withdraw the taxed profits from the company.
2. More cost - the professional costs in setting up, preparing accounts and tax returns for companies can be higher than those if you were, say self employed. There are also costs in complying with Companies House formalities.
3. Audit requirement - If your company exceeds a certain size, or is in a conducts business within a particular industry sector, it may require an audit, incurring further costs. Most small businesses will be exempt from audit.
Would a limited company be suitable for your business?
This is not an easy question to answer quickly. Our expertise in this area means that we can confidently discuss your individual requirements and assess your business needs. We can provide you relevant information to help you to make an informed choice on the best way forward.
Whatever you decide, it should allow you to take advantage of the most beneficial tax arrangements available to you, and enable you to make rational decisions about action that you can take to minimise your commercial and individual risks.
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