Sandison Easson Specialist Accountants Federation of Independent Practioner Organisations

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Limited Companies...

A Limited Company is a separate legal entity that comes into existence when the company is incorporated.

The shareholders of the Limited Company own it in proportion to their shareholding.

As its name suggests the liability of the members/shareholders is limited to the nominal value of their shares. The shareholders as for partnerships share a common goal but the shareholding can allow for different levels and different types of commitment.

A Limited Company can be incorporated by contacting Companies House direct or through an agent for approximately £100. Although it is inexpensive to form the administration costs of a trading company can be relatively high. In addition, a Limited Company has to disclose certain financial details of its results and personal details of directors, which can be accessed by the public for a nominal sum.

Unlike all the other professional entities discussed on this website a company is subject to what is known as Corporation Tax. This is a different form of taxation to Income Tax, which has different rates, penalties, submission deadlines and computational rules.

The rates of Corporation Tax are as follows:

Taxable Profits     Rate
£0 to £10,000     0%
£10,000 to £50,000     23.75%
Up to £300,000     19.00%
£300,000 to £1,500,000     32.75%
Over £1,500,000     30.00%

The majority of you are probably familiar with the 0% and 19% tax rate bands.

What is often ignored is that when a Limited Company is formed and earns income the profits belong to the company upon which Corporation Tax is paid and needs to be extracted by the shareholders/directors upon which Income Tax maybe liable.

There are two main ways of extracting funds from a Limited Company. The first is by way of dividends and the second is by way of a salary. For consultants who because of their NHS salaries are already higher rate tax payers the extraction of funds by the above methods can result in an overall tax and national liability in excess of the 40% that would have been payable if they where sole practitioners or in a partnership.

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