Farley And Partners

Tax and the limited company

If the limitation of liability is an important consideration, then a limited company may be the right solution – but do bear in mind that banks and other creditors often require personal guarantees from directors for company borrowings, so the owners or directors of the business may in fact bear the liabilities of the business out of their personal assets.

Trading through a limited company can be an effective way of sheltering profits as the rates of corporation tax on profits are generally lower than those applying to unincorporated businesses which can be 40% (including national insurance contributions) or more. Although profits paid out in the form of salaries, bonuses, or dividends will normally be taxable at top rates (with quite punitive amount of national insurance contributions in addition), profits retained in the company are taxed at a lower rate – see our tax rates and allowances section for a breakdown of the tax rates..

Retained profits can be used to buy equipment or to provide for pensions – both of which should be eligible for tax relief.

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