Tax advantages of incorporation

Although Gordon Brown did a u-turn in the March 2006 Budget and increased the tax rate for small companies back to 19%, there can still be significant tax savings to be had by running your business through a company compared to the alternative of being self employed.

For a start, the 19% company rate is still 3% less than the equivalent 22% self employment tax rate. In addition you can get out of the 8% national insurance that the self employed have to pay by taking dividends rather than salary from the company.

Companies pay their tax bills 9 months after their year end whereas self employed pay it partly during the year and partly 4 months after the end. So there is also a significant cash flow benefit to being a company.

If you are currently self employed there are additional tax benefits to be had if you transfer your business into a company. For example, by selling the goodwill, plant & machinery, computer equipment etc to the company it is possible for you to make tax free profits in the company of up to the value of those assets.

So, even though you may hear that some of the benefits of incorporating a business have gone - we think it is still worthwhile.