KA Farr & Co are tax experts and offer a specialist personal taxation service for individuals on all tax-related matters.
Your tax planning is dependent on the size and structure of your company, there could be different tax advantages for each structure.
As a sole trader, you are both the business and its owner for tax purposes. No tax distinction is made between taxable profits and what is earned by the business. Tax thresholds and rates for sole traders are the same as if you were an employee. However, unlike an employee, you can claim expenses as long as they are deemed to be just for the business.
In tax terms, this is the same as 2 sole traders working together. Therefore you will still file your own returns and pay tax and national insurance on the same self-employed terms.
Once you register a limited company, you become an employee and a shareholder. This means you are able to draw a salary, which you can pay yourself with PAYE. You are also able to draw dividends out of profits. One of the key tax advantages of a limited company is that profits can be retained for reinvestment. The advantages of this are that they are taxed at the corporation rate rather than income tax rates.
Limited Liability Partnership (LLP)
The members of the LLP are individually self-employed and the LLP will file an annual tax return, but each partner will report their share of the profit on their personal tax return.