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When deciding on a company structure for your business, it’s important to consider more than just the potential tax savings on profits. While corporation tax rates range from 19% to 25%, sole traders and partnerships are subject to income tax rates of 20% to 45%, with a tax-free personal allowance of £12,750.

Accountants advise that the company structure is beneficial for businesses looking to grow rather than take out profits, but careful consideration should be given to capital taxes, especially inheritance tax (IHT). Partnerships can be efficient, particularly for IHT, as assets held in a partnership can qualify for agricultural property relief (APR) and business property relief (BPR) at 100%.

Capital allowances are more generous for companies than for sole traders and partnerships, with full expensing available until March 2026. However, tax saved upfront through capital allowances can be viewed as an interest-free loan from HMRC, which may catch up with the business in the future.

When moving to a company structure, it’s essential to seek advice early, update legal documents, and consider the implications on income extraction strategies. Gifting company shares on inheritance can be tax-free if APR and BPR are available.

From a legal perspective, a limited company offers limited liability, separating the management of the business from its ownership. However, there are additional administrative burdens, including filing annual accounts and confirmation statements.

Overall, the decision to move to a company structure should be based on a thorough understanding of the tax implications, legal considerations, and long-term implications for the business.

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