Should you form a company?

Should I form a Company?

Most business owners face the decision whether to be a sole trader or a company at some, 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


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.

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