Benefits of Incorporation

Benefits of Incorporation

There are many significant advantages of operating as a limited company (Ltd) in the UK. Over the last five years, the majority of the largest tax benefits have been removed, but that doesn’t mean there aren’t still good reasons to consider incorporation.

Here we look at the key reasons to incorporate a business in the UK.

Limited Liability

As a shareholder of a company, you have “limited liability”, meaning you will not be personally liable for the debts of your business – as long as there is no fraud taking place.

A limited company will give you added protection if things go wrong, or trading slows down. As shareholders, if the business can’t pay its debts, then creditors can’t go after you, your house, or any other assets not owned by the company itself.

Tax

There are still tax benefits to having a distinct business as opposed to operating as a sole trader:

  • All shareholders are allowed to receive £2,000 of dividends after paying just 19% corporation tax, a significant reduction on the amount of income tax and national insurance you’d pay through payroll.
  • Depending on any other income, you can choose to take the majority of your salary as dividends, and avoid paying National Insurance.
  • More expenses are available to claim for someone working through a limited company.

The details of tax are complicated, and these are a few examples. Get in touch with us for personal advice and a free, no-obligation initial call.

Finally, when it comes to winding up the company, you may be able to take a large amount of the retained profit through a capital gain, paying tax as low as 10%, if you are able to take advantage of Entrepeneur’s Relief.

Succession

A limited company gives you a great option to sell on your business when you retire, or just want to change career paths. By simply selling the shares, you have the option to instantly, immediately, and without fuss, transfer over the entire business as-is.

It’s far easier than trying to transfer over a sole trading business – as often every individual bill will have to be laboriously changed, and accounts re-opened with suppliers.

Downsides

We can’t pretend that it’s always better to “go limited”. There is more administration, and usually you’ll find that you’ll need an accountant to help.

Andach can provide a single subscription package for a full company administration service, to reduce your costs and make it far easier to budget.