Becoming a Company

The limits of liability

In the summer budget the government proposed changes to dividend taxation for 2016/17, aimed at taxing the owners of companies who are currently paid a small salary (say around £10,000 per annum to utilise their personal allowance) and the remainder of their remuneration in dividends in order to reduce national insurance costs.  This measure is intended to make ‘tax motivated incorporations’ less attractive to curb the number of single director personal service companies being set up, but it’s effects are going to be far more wide reaching; the Government estimates that the new tax will raise £2.45bn during 2016/17.

 

So with much of the tax incentives gone for directors of limited companies, sole traders or partners may be having second thoughts about incorporating their business (changing the structure to a limited company).  However the other advantages of going limited still remain, including:

Limited liability – the liability of company owners is limited to the value of their investment in that company, which provides personal protection in the event that things go wrong.  Providing that the owners have not acted fraudulently then they will not be personally liable for liabilities of the company.  For sole traders or partnerships  there is no such personal protection for the owners.

Image – being limited can give a perception of scale, i.e. people may think that you are larger business.  Also limited companies publish abbreviated accounts every year that result in a credit rating, which can provide comfort to other companies looking to trade with you.

Succession – when retiring or selling a business a shareholder can often find it easier to transfer ownership of his shares in that business, compared to a sole trader or partnership.

Naming – as a sole trader or partnership it’s possible that others could trade under the same name which can be damaging to a brand.  Registering a company name at Companies House protects the name of your business.

 

If you would like to discuss whether now is the right time to incorporate your business then we’re here to help https://www.jrbaccountancy.co.uk/contact-us