Restructuring: Would You Benefit From Incorporating Your Business?
Many businesses start out as sole trades or partnerships because the owners want to keep things as simple as possible. This can however lead to larger than expected personal tax bills if the business becomes successful. Liabilities resulting from individuals suffering high combined rates of income tax and National Insurance, together with the timing of payments on account, can result in very high tax bills that can make cashflow very difficult for the business and individual. Particularly in current conditions, avoiding such cashflow problems may be critical.
A limited company structure can help reduce overall tax liabilities and improve cashflow for the business. Lower tax rates and potentially easier raising of finance from outside sources may mean that incorporation is a good idea. Given the current trading circumstances, the limited liability protection given by running a business through a limited company structure, will also be a key consideration for the owners of many unincorporated businesses.
Converting an existing sole trade or a partnership to a limited company can be straight forward as long as the process is well managed, proper planning is undertaken in advance, and the correct procedures are followed.
There are various options available as to how the assets of the unincorporated business are transferred to a new limited company, and these can create potential tax saving opportunities if done with careful advanced planning and good professional advice. It is important to put the right steps in place to ensure the route taken qualifies for all applicable tax reliefs.
For example, we are working with a new client who was trading as a successful partnership for a number of years. Whilst they were aware of incorporation being an option this was not a route they had taken until EQ discussed the pros and cons, explained the process, and highlighted the potential tax savings involved. Now, after two years trading successfully as a limited company, the shareholders can see the tremendous tax savings generated.
Our Transaction Taxperts will explain the pros and cons of incorporation specific to your business and advise on the tax reliefs available to help you and the business go through the process in an orderly and tax efficient way.
You can read our previous article on ‘Do You Need To Protect At Risk Trades Or Assets?’ here.