Autumn Winter 2016

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Plenty of businesses toy with the idea of incorporation but
few actually take the time and effort to consider the real
implications of doing so and what this will mean for them
and their business. Continuing changes in tax legislation and
Government policy mean it is important to keep up to date
with how these changes will affect your business, allowing
you to take action to ensure you make the most of any
planning opportunities that may be available to you.
A business may consider incorporating for a number of
different reasons. Whether it is the appeal of having limited
liability, the enhanced perception, personal asset protection
or making the most of the tax savings that can be made – it is
important to consider each implication separately and reflect
on how this will apply to your individual circumstances.
Why incorporate?
One of the main benefits of incorporation is the limited
liability. This leaves less risk with you as an individual
because as a sole trader or partnership you are responsible
for all legal and financial issues that may arise. If the business
fails, then this may lead to bankruptcy for the individual,
whereas if you are the owner of a separate limited company
and this goes into liquidation, you as the owner only lose
what you have put into the business and any personal assets
are protected.
Other advantages of incorporating include the prestige of
a company name and the letters ‘LTD’. This can often help
businesses win contracts and also assist when trying to raise
finance for the business.
Companies pay less tax on profits than individuals and do
not pay National Insurance on profits they make.
As a sole trader or partnership you may be paying tax at the
higher rate of 40% whereas a limited company would only
pay tax at 20% on the same level of profits.
“...it is important to consider each implication
separately and reflect on how this will apply
to your individual circumstances...”
Drawbacks
As a limited company is a separate legal and professional
entity there are a number of reporting requirements that
need to be complied with. Company accounts need to
be prepared in accordance with the Companies Act and
the relevant accounting standards, and they then need to
be submitted to Companies House. Information held by
Companies House is readily available on record to the public.
However, only certain information can be accessed and
this is usually not a deterrent when considering whether to
incorporate your business.
The extraction of funds from a limited company can be more
complex than that of a sole trader or partnership as it can
give rise to personal tax liabilities, as well as corporation tax
liabilities (if the director owes money to the business for more
than nine months).
How to incorporate and the company name
When incorporating a limited company one of the first things
to think about is what your company name is going to be.
Your company name is much more than a collection of words
to head up your invoices – it plays a monumental role in a
brand’s growth and perception.
Tax liabilities and payments
Company tax payments are different from those made by
sole traders and individuals in partnership. A majority of
companies only make make one tax payment in the year
based on their taxable profits and do not make payments on
account.
“...other advantages of incorporating include
the prestige of a company name and the
letters ‘LTD’...”
The date of payment is dependent upon the company’s
accounting year end and is payable nine months and one day
after this date. For example, a company with a 31 December
year end will have to pay their Corporation Tax on 1 October
the following year.
Companies that meet the criteria do however have to make
quarterly instalment payments towards their Corporation Tax
liability.
We would always recommend seeking professional advice
when looking to incorporate your business. By getting a
professional involved from the outset you will have peace
of mind in knowing that a comprehensive review has
been completed. This allows you to make an informed
decision for you and your business after consideration
of all the advantages and disadvantages. A professional
recommendation should always be predominantly based on
your business results, your income requirements and your
future plans.
Consideration for incorporation
Incorporation is the process of defining your
business as a legal and professional entity
that is separate from its owners.
If you would like more information on
incorporating your business, call Danny
on 01768 877000.
Danny Roper
Business Services Specialist
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AUTUMN/WINTER 2016 AUTUMN/WINTER 2016
If you are considering incorporating your business then give Danny a call
on 01768 877000. It is important that all aspects of your business are
considered to ensure incorporation is the right move for you.
Once you have a
name you will also
need to consider:
• Who the shareholders of the
business are going to be.
• Who is going to be the company
officers such as directors
and secretaries.
• The time of the year you want
your company accounting period
to run to and from.
SOLE TRADER
PARTNERSHIP
COMPANY