INCORPORATING YOUR BUSINESS

Do you wonder whether your business should be run through a company? As well as considering whether this could save you and your family/business partners tax, would it make sense commercially?

Overview

• If you decide to “incorporate” your business, the “sole trade” or “partnership/LLP” business ceases and the company commences for tax purposes. The “business” and certain assets are transferred.
• The owners become director/shareholders of a new separate legal entity.
• A change in mindset is needed with new responsibilities as directors for example.
• Some potential commercial and tax benefits may be gained.

Main considerations and tax issues

• The level of profit that the business makes and how much of this is retained in the business.
• Consider the level of personal expenditure that the owners will need to fund from the business.
• Capital Gains Tax position on chargeable assets being transferred to the company (typically goodwill and property, although property might be left out of the company).
• Entrepreneurs Relief on goodwill sold to the company is no longer available. So “holdover” or “incorporation” reliefs from CGT should be considered.
• Stamp Duty Land Tax may be a barrier to transferring valuable business property to the company.
• Certain tax elections need to be considered – stock, capital allowances on plant and machinery etc.
• VAT – Transfer of Going Concern provisions often apply.
• More potential flexibility with a company making pension contributions, subject to the rules.
• Some reliefs only available to companies such as R&D tax relief/Land Remediation relief.
• The long term Inheritance Tax position may be impacted too, especially where property is involved.
• Involvement of adult children in the business? Structuring of shareholdings and rights etc.
• Various practical boxes to tick – e.g., company headed paper, accounting software, advising suppliers/customers of new entity, employees/employment law (TUPE) etc.
• Limitation of liability vs accounts on public record.
• Need to weigh up any tax savings against extra administration and governance

(This is based on legislation currently in force and is not to be construed as formal tax advice).

At Richardson Swift we specialise in helping owner managers achieve the right structure for their business, no matter what route they decide to take. For more articles on business tax, see here Or book a free consultation with our tax director Jon Miles. Or call Jon on 01225 325580 or email JM@richardsonswift.co.uk