The choice of reverting to the incorporated status for any business bring about so many changes and responsibilities; company formation will be so much different from self employment status and it all begins with the fact that there are certain tax advantages that can be enjoyed with this company set up.

– In company formation, the incorporation details should be submitted to Companies House, and these details need to be update annually, through the Companies House Annual Return.

– Any financial accounts that had been audited should also be filed every year with both the Inland Revenue as well as the Companies House.

– The directors of the Limited Company must follow all the provisions stated in the Various Companies Acts.

– There should always be formally appointed company officers in the limited company set up; with at least one director, one secretary When there are several directors in the company, one can stand as a secretary. However, a sole directory cannot also be the secretary.

Advantages of Corporation Tax

If you are a sole trader, you will be required to pay income tax on your net taxable profit; however, if you have a limited liability company, you will only be expected to pay tax corporation tax that is payable on the net profit. Each year that comes, bring a different advantage and disadvantage to the business owner; tax rates and allowances change every year:

– The rate for Corporation Tax increased to about 19% to 20% on the 1st of April 2007 until the following year, of the same month and day.

– This rate increased a further 21% to 22% from 1st of April 2008 to 2009.

As a sole trader, if your business is earning more than 34, 840 pounds before the owners and directors’ wages are subtracted, apart from the normal tax, you will also be required to pay 8% national insurance. On the other hand, in an incorporation, tax will be dependent upon the level and expected level of net profit.

Advantages of Limited Liability
When you are a sole trader, you do not receive any kind of protection from the business liabilities, even if the business has run into a financial crisis. However, is you are in a limited company, the liability will be limited to the amount subscribed for shareholding.

The banks and credit institution will usually require directors to offer personal guarantees against loans and credits made in the name of the limited liability company. Moreover, during insolvency, the directors will be financially liable for the debts incurred. To be able to protect one’s self, administrators of companies cease trading, as soon as the company go into liquidation; to avoid being liable for any subsequent debts incurred.

There are different features in both being a sole trader and going into a limited company set up. Whichever kind of business you decide to into to, make sure that you are prepared for it. Hiring a solicitor to take care of the legal aspects during company formation would be very well advantageous for your business.

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