1. How much taxable profit does my business make?

Corporation tax for limited companies is fixed at 19% until 2023 and does not incur class 2 or class 4 national insurance and so for businesses with larger profits it is generally more beneficial to incorporate.

  1. Do I have any other sources of personal income?

Taxable profits from self-employment are included on an individual’s self-assessment tax return and combined with income from all other sources such as rental property income and bank interest. This can push an individual into the higher or additional rate tax band meaning profits could be taxed at either 40 or 45%.

  1. Am I running my business alone or with a business partner(s)?

Unincorporated partnerships have their profits split between proprietors at a pre-determined rate. In a limited company, you can set up multiple directors or shareholders to allow designated voting rights on company decisions and allow more control over what is paid to each individual and allow more flexible personal tax planning.

  1. Do I want to protect my personal affairs with limited liability?

Operating through a limited company provides limited liability for the business owners up to their investment within the company. Ultimately this means if the company fell on hard times, there would be a restriction on your personal liability to company debt and protect your personal assets.

  1. How easily do I want to draw funds from my business?

As it is business profits which are taxable in full for sole traders and partnerships, there are no restrictions on your ability to use any funds from the business for personal matters. In limited companies, as the profits and any money held are the property of the company and not the individual, there are more restrictions on how much can be drawn and this would need to be done through either a payroll scheme or via a dividend payment, both of which will then be reflected on your self-assessment tax return for that year.

Author: Sam Baldwin, Business Services Assistant Manager, Plus Accounting

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Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site

Date published: 28 July 2021