Budget for Limited Companies?
14th March 2017
A mixed message from the Budget last week for business people wondering whether to use a limited company or to operate as an unincorporated sole trader/partnership from April 2018.
The headline grabbing 1% increase in NICs for the self-employed does not affect those using limited companies as NICs do not apply to dividends (which is how people with limited companies take most of their pay from the business), but the decrease in the dividend allowance from £5,000 to £2,000 increases income tax for company owners, but not for sole traders and partnerships.
As always the decision can be different depending on the level of your earnings, but one thing is still clear – if your profits exceed the higher rate tax limit of £43,000 and you can afford to live on drawings from the business that are within that limit, the limited company structure enables you to avoid paying the higher rate tax by leaving the excess in your business account, and that flexibility can be very valuable for maintaining working capital.
Added to which, the generous R&D relief for innovative businesses is only available to limited companies and on a more general level, the financial protection afforded to director/shareholders remains a bonus for them in that their personal assets are protected from business creditors in the event of a genuine business failure.
And finally………… the extra time that limited companies have before entering the dreaded “Making Tax Digital” regime for quarterly accounting – they have until April 2020 whereas unincorporated businesses have to sign up from April 2018, although at least that deadline has been put back a year to April 2019 for smaller businesses (turnover under £85,000) in the Budget.
Peter Hedgethorne, Director
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