Introduction

Following recent tax changes the benefits of incorporation have been eroded. Ten points to consider when deciding whether or not to incorporate a business are considered below.  

Administration

There is more administration involved in running a limited company, as compared to a sole trade or a partnership. For example the company will need to prepare accounts for the tax authorities and Companies House, as well as submitting an Annual Return. A PAYE scheme will also attract year end returns and a returns of director's benefits in kind. The directors will also need to submit personal Self Assessment Tax Returns.    
 
Legal

The Company Officers are responsible for their actions as officials of the Company. Under the provisions of the Companies Act 2006 there is no need to appoint a Company Secretary but if you do they will be have legal responsibilities in the same way as directors do.   

Tax considerations

Will incorporating save you tax and National Insurance? This will normally only be achieved if you are a higher rates tax payer.

Remuneration

The normal practice for owner managed Companies is to take low level of Remuneration to save tax and national insurance, supplemented by dividends. Other factors should be borne in mind such as the need to maintain income for the purposes of obtaining personal finance or pension purposes.   

Husband and wife

Is your wife going to be involved in the business?

Motor expenses

Unless only a small business mileage is being undertaken it is not generally tax efficient for owner managed companies to provide directors with company cars. It is generally more tax efficient to claim mileage expenses using the approved mileage rates.     

Other expenses

Expenses such as office running and travelling costs are deductible against company profits using less stringent rules than is applicable to employees claiming expenses. Overhead costs such as telephone should paid using accounts be in the company's name and not in the name of directors, thus avoiding problems with benefits in kind. A company credit card or debit card should be used for company expenses as the reimbursement of amounts paid on personal credit cards will lead to problems with benefits-in-kind.

Company vans

Company vans are now taxed at a higher rate than previously because directors and other employees who fall within the scope of benefits in kind are penalised where vans are provided for private use. 
    
Property

It is not generally tax efficient to introduce properties into limited companies due to the fact that taper relief is not available to them in the same way as it is to individuals.    

IR35

Management Consultants and IT Contractors who incorporate should ensure that they are complying with the requirements of IR35. Contracts should be drawn up which provide for independent working patterns and the ability to provide a substitute. The practical reality should reflect the provisions of the contract.  In all cases travel from home to work and travel expenses incurred whilst working away from home will only be allowable for up to two years from the commencement of the contract.

Further advice

For further advice contact us on 01299 879140.