Commentary

D1.121 Company versus other mediums

Corporate tax
Corporate tax | Commentary

D1.121 Company versus other mediums

Corporate tax | Commentary

D1.121 Company versus other mediums

The advantages and disadvantages of corporate status in any particular case must be determined in relation to all relevant factors including commercial factors, company law and taxation. Other appropriate mediums are sole trader, partnership or limited liability partnership.

The principal taxation factors which need to be taken into account in deciding whether to conduct a business through a limited company or as a partnership or individually are:

  1.  

    (a)     Rates of tax. The income of a partnership or sole trader is liable to income tax at the trader's marginal rate, and Class 2 and 4 national insurance contributions are payable. The rates of corporation tax on a company's income are usually lower than individual's marginal rates, but profits extracted from the company and paid as remuneration to directors and employees are also liable to income tax and Class 1 national insurance contributions. After April 1999 dividends do not give rise to a liability to ACT. They must be paid out of after-tax profits. From 6 April 2016 the recipient is entitled to a 'dividend allowance' which operates as

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