Reduce overall tax payable In many situations use of a company can reduce the overall tax payable by a business. Use our calculator to see how incorporating would affect your tax position. 
Early years - losses If losses are incurred in the early years of a sole trader or partnership business, these losses can be offset against income for earlier years. This can often create a tax refund. Future sale of the business When a business is sold, the gain is subject to capital gains tax. The sale of business assets attracts 75% business taper relief after 2 years of ownership. However retained profits must be invested in the business, such as stock or fixed assets needed for the trade. If long term investments are acquired which exceed the 20% de minimis limit for non-trading activities, the company may not be a trading company for business taper relief. After full taper relief and exemptions a capital gain of up to £36,800 may be realised in 2007/08 in without any CGT becoming payable. It is important to realise that an individual selling goodwill as a sole trader or partner will get taper relief, as will an individual selling shares in his trading company. However, the purchaser may not want to purchase shares. For tax and 'risk' reasons they may want to purchase the assets from the company. The company will then pay tax on the gain, however that money then belongs to the company, and a further tax liability will arise on the extraction of the funds from the company. Cash flow benefit The corporation tax on profits is due nine months after the end of the first years trading. This creates an initial cash flow benefit on incorporation. (There are different rules for large companies.) Minimum Wage If there is no contract or a signed statement to say there is no contract then the minimum wage rules do not apply to directors. In a sole trader or partnership business family members do not have to have a minimum wage, but unless they are directors they do need to have a minimum wage inside a company.
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