Sharon Adams, Tax Partner at Waltons Clark Whitehill

Member Article

Small companies can prove a boost

An increasing number of people are discovering the benefits of forming a small company. For all kinds of business, this can prove to be an attractive vehicle because of the ability to shelter profits and income from higher rates of Income Tax, as well as National Insurance (NI).

More and more families are using small companies as a secure structure in which to hold investments and they can also be a useful way to start to pass ownership down to the next generation of the family. These benefits are particularly strong where profits of around £60,000 and upwards are being achieved.

Some might think that the time to do this is when you pass into the 40% tax bracket threshold, but actually the cost of doing so can outweigh the benefits until you get up to this level. With regard to National Insurance, those who are in a partnership or are sole traders are subject to NI Class 4 contributions.

However, in a Limited Company there is the option of taking more money in terms of dividends, which are not subject to NI. In more established businesses, taking advantage of goodwill can see money taken out of the company with a 10% payment, rather than paying Income Tax and NI.

As well as the positive tax implications, forming a Limited Company has benefits such as limiting liability, so the reasons for making the change reach much further than tax. People who believe they can benefit from such a move should take professional advice.

Sharon Adams is Tax Partner at chartered accountants and business advisors Waltons Clark Whitehill in Hartlepool.

This was posted in Bdaily's Members' News section by Waltons .

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