Should I form a Company?
Most business owners face the decision whether to be a sole trader or a company at some stage.here, we briefly outline some issues
| For | Against |
| Retained profits taxed at lower 12.5%. | Higher accounting costs |
| Higher pension contributions | More legal obligations |
| More options on exit | CRO returns |
| More ways to sell/pass on | Possible audits |
Tax Rate
Depending on the nature of its income, the company will pay tax at 12.5% or 25%. This is better than your high rate of 41% plus income levy. This is relevant when the business makes more than you need to draw out.
Pension contributions
The company can contribute on top of your own contributions, subject to revenue limits on fund values.
Another advantage here is that this avoids income levies. Your contributions are not exempt from these.
You should always get professional pension advice
Exit
Severance payment options may be available on retiremment as a director
Passing on the business
For example, company shares are easier to manage when pertitioning a business between family members. Particularly with second families, it may be useful to use different share classes.
Becoming a company
There are Capital Gains Tax exemptions on transferring to a company. There are possible stamp duty implications. Your solicitor and tax adviser can help with these.
Important Note
The above is only as a brief guide. It is not meant to replace professional tax advice.
