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Is the Small Company Still Viable?

Newsletter issue - April 07.

The increase in corporation tax for small companies from 19% to 22% over three years is intended to discourage businesses from incorporating just to save tax. As from 2009 the corporation tax rate will be higher than the basic rate of income tax, which will apply on profits of up to about £43,000.

For 2006/07 the basic personal tax rate was 22% and the corporation tax rate 19% but by 2009/10 it looks like being the other way around with a basic personal tax rate of 20% and a corporation tax rate of 22%, an overall swing of 5% more tax for small companies!

However, an individual also has to pay Class 4 NICs at a further 8% on his self-employed profits, on top of the income tax due.

To assess the overall effect of these different tax charges, consider a business making profits of £50,000 in 2009. As a company it will pay corporation tax of £11,000. Trading as an individual the total income tax and NI payable will amount to £12,614, (assuming allowances increase in line with inflation). The tax saving for the company is thus expected to be about £1,600 per year. However the funds are held within the company, so transferring the money to the shareholder may create a further tax charge if that shareholder is already paying higher rate tax. Whether or not you plan to retain profits in the company for reinvestment will be a major factor to consider.

If you are considering forming a company, or want to stop using one, please come and talk to us first so we can work through the numbers. There will be a different answer for each business and at present in the 2007/08 tax year it is likely the company is still the best option.

 

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What our clients say

Dakins Property Services

Great Results, Personable, High Integrity

Choice Events Limited

All at Beauchamp Charles are very helpful, approachable and easy to talk to. They keep me informed with key dates; I can feel totally confident that I won't ever miss any deadlines! Whoever I deal with, always deal with matters professionally and efficiently and if they are unavailable they get back to me promptly.

FT leisure Ltd

I have worked with Beauchamp Charles as our management accountants for over 20 years and have never received anything less than exceptional service. Their approach is both professional and personal. Finances and particularly tax strategies are a minefield for small businesses; Beauchamp Charles have in-depth knowledge of these area, which is comforting. They pay very close attention to our business activities and have provided financial strategies that have helped our company develop.

Fredrick Thomas Electrical and Maintenance

We have used Beauchamp Charles since company formation back in 1998. Beauchamp Charles offers us a one to one service as they are small enough to offer this dedicated service and large enough to do the work and offer best advice. They get to know us as individuals and a business, always giving sound advice. Frederick Thomas Electrical are in a stronger place thanks to the service we get from them.

Barnes Walker Landscapes Limited

We are a small business and had employed the same accountancy firm for many years. Two years ago we took the decision to switch to Beauchamp Charles after several othe local businesses recommended them very highly to us. We have not been disappointed with the service they have provided to us over these last two years.