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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