Part 3: Budget News in Detail – Why incorporation makes more sense than ever

Whilst the budget was very much around personal taxes, savings and investments, a few excellent things came out for businesses as well, including the surprise announcement of the doubling and extension of the Annual Investment Allowance. However, the new arrangements with regards to the corporation tax rates demonstrates why it makes more sense than ever to be and to remain a limited company for trading purposes.

The Benefits of Incorporation

Incorporation has always been a tax effective vehicle by which to trade once profits reach (very, very broadly) £50,000. This is because the higher rate of tax kicks in for those being taxed under income tax.

An even lower tax rate for companies 

Currently the main rate of corporation tax is 21% although the small profits rate applies for companies with profits up to £300,000, which is set at 20%. The Budget has announced that from April 2015 there will be a single rate of corporation tax at 20% regardless of profit levels. This is now one of the most competitive rates in the G7, coming from a place 4 years ago of being one of the least competitive at 28% Good news for the larger companies amongst our readers!

Avoid the tax avoidance schemes

With the government cracking down even further on tax avoidance schemes in an attempt to claw back millions of UK pounds each year in tax, tax payers must consider more legitimate ways to cut their tax bills that doesn’t provoke HMRC to investigate. A properly thought out incorporation, specifically considering the unique business and personal circumstances of the tax payer typically reduces tax bills for our clients by between 30% and 50% – a very dramatic reduction – and not a tax scheme!

Incorporation specialists

For those trading as self employed or under a partnership, please be aware that incorporation is not just the setting up of a limited company and starting trading in that way – there are several different angles and little-known legitimate tricks in which the real benefits of an incorporation are found, so anyone looking to explore this should take specialist advice.