One of the most important decisions that must be done by business owners is whether to operate as a single trader / partnership or through a limited company. The company’s tax rate has fallen in recent years and this has made company routes more attractive even for those who post relatively low profits. However, decisions about merging should not be taken for tax reasons. Business nature, trading method and even the personal state of the owner must be considered before the conclusions are achieved and therefore it is important for you to take advice from your accountant before making a decision.
Ignoring the nuances that will color individual decisions, there are several areas that apply to all decision processes. These include:
Who has a business? Limited companies are separate legal entities and this means that directors must act for the best interests of the company than their own best interest while a single trader has more freedom to make changes in the business structure. However, business debt is run by a limited company remains the company’s debt while it is from a single trader falling on the business owner itself.
Ongoing taxes and legal implications. Not only different tax structures, limited companies have legal obligations to submit company accounts and publish documents such as minutes and resolution. This can produce additional costs and loss of privacy. However, given the current corporate tax rate and the flexibility of changing “owners” through salaries or dividends this fee is usually greater than tax savings.
What happens in sales or business transfers? Limited companies tend to be seen more professionally and therefore can often order higher prices for sale. In addition, the ability to buy, sell or transfer shares can make company ownership transfers that are relatively simple and potentially helpful with IHT planning.
Special consideration for existing businesses. Switching from a single trader to a limited company or back can be a minefield with financial, tax, contractual and legal issues all require careful planning. For example, contracts with suppliers may need to be negotiated while transactions can have a profound effect on available tax reliefs.
The business is considering switching between single traders and limited companies or starting for the first time being encouraged to take an accountant. They will guide you through the decision-making process and help with legal requirements such as company payroll, tax and VAT registration; Helps you to get your business on a sound footing.