Incorporating your business into a limited company is a big decision. However, it is one that is definitely worth considering, especially if your business is generating a profit.
With non-registered businesses, the business owners are taxed directly, having to pay income tax, which can be as high as 45%, and national insurance.
However, with limited companies:
- The corporation tax rate is generally much lower than the personal tax rate;
- Business owners and directors have the option of paying themselves a combination of both salary and dividends, which is taxed less heavily;
- If you are setting up a limited company with a spouse or partner, there is always the option to split your income, which can save even more tax.
Furthermore, to encourage investment, the UK is beginning to operate one of the most competitive tax systems in the world. From 2015, corporation tax will be lowered to 20% (from 21% in 2014), becoming the joint lowest in the G20, and benefitting all UK businesses.
What’s more, among the above key tax saving benefits, limited companies also get access to more funding opportunities and incentives, among these are:
- Pensions. Limited companies can make contributions for all of their directors and employees, which can cut down national insurance contributions;
- Research and Development (R&D) Tax Relief. If your business carries out projects that aim to achieve an increase in the overall knowledge or capability in a particular field of science or technology, you may be eligible to claim R&D tax relief. The rate of the cash credit payable to SMEs conducting qualifying R&D activities stands at 14.5%, as of April 2014, based upon qualifying expenditure;
- Employee Incentives. Limited companies have the option of incentivising and retaining key employees through tax efficient share schemes, such as the Enterprise Management Scheme.
Finally, if your business first commenced trading on or after 1st April 2002, incorporating your business now may mean you are eligible for further corporation tax relief due to the value of goodwill your business has acquired over its useful lifetime.
If you are considering incorporating your business, or would like to find out if it can be of benefit to your business, contact firstname.lastname@example.org, who can help support, advise and answer any questions you may have.