Sole traders and Partnerships - Don't get ‘hammered’ by tax wastage - Consider incorporating?

Mitchell Charlesworth is advising that sole traders and partnerships may wish to consider the option of incorporating after a study* revealed that nationally they are potentially wasting more than £4.2bn in unnecessary tax payments.

Specialist Tax Partner, Tim Adcock urged partnerships and sole traders to seek professional accountancy advice and consider rethinking their tax strategy.

He said an estimated 1.3m sole traders and partnerships could reduce their tax bill by incorporating their businesses and making them limited companies or limited liability partnerships.

"Many sole traders and partnerships are hammered by tax when they do not need to be,"

"Sole traders are taxed under the self assessment system which has a top rate of 50 per cent for those earning more than £150,000 (45% in 2012/13). Corporation tax by contrast is much lower, with an upper rate of 25 per cent for profits of between £300,000 and £1.5 million and only 20% chargeable on profits below £300,000. Directors of limited companies can also pay themselves small salaries and high dividends - which are free from national insurance and income tax - resulting in potential savings of thousands of pounds."

Tim Adcock says it is always vital to seek advice because incorporation is not suited to every sole trader and partnership, but it can offer another major benefit. There are also a whole host of non-tax considerations which must be taken into account.

"Under the limited company structure - personal and company finances remain separate. Personal assets cannot be touched if the business fails, providing you have acted in good faith. Sole traders and partnerships by contrast are much more exposed if things go wrong. For them personal liability is unlimited."

"In the current climate it is essential to minimise tax and exposure in case things go wrong due to circumstances that are out of the owner's control. It is vital to take expert advice from a firm experienced in this area to ensure you have the best company structure for your needs."

* The figures were released by professional advice website

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