News and Views
Could I save tax by transferring my business to a company?

Incorporation is very much a topical issue at present. The reason is that the transfer of sole trades or partnerships into companies has come to prominence recently is the decision of Gordon Brown to reduce the starting rate of corporation tax for profits of up to £10,000 per annum to 0% from 5 April 2002. The savings in tax and NIC can be considerable ñ see below.

It has always been advisable for sole trades and partnerships to incorporate for tax reasons if their profits rose over a certain level (Approximately £40,000 in recent years). However the recent drop in corporation tax rates has made these savings attractive to even smaller businesses. The tax and NIC savings that can be achieved on profits of £20,000 are around £3000.

It should however be mentioned that there are downsides to incorporation that are often not mentioned when the tax savings are discussed. Prime amongst these is that the company is a separate entity from the proprietor and funds cannot be removed from company without suffering some sort of tax charge. That tax charge may be at 0% but extraction of funds needs to be carefully planned or the tax savings can be thrown away. If not properly planned large benefits in kind can also arise if for example a car is provided through the company. Proper professional advice is essential before incorporation is considered.

For advice on whether incorporation may be of benefit to you can contact Chris Wright to discuss your position.