If you are the only person in your business, you have a fairly straightforward decision to make – operate as a sole trader or incorporate as a limited company.
But for businesses with more than one owner, the common choice is between running a limited company or operating as an LLP (limited liability partnership).
Where once limited was generally the most favourable route, creeping increases in taxes – in particular Corporation Tax and Dividend Tax – means the choice is now less clearcut. An LLP could be a better option.
So, what should you consider?
Think about your long-term plan for the business. If you are considering selling, then it might be easier to do so if it is a limited company.
Also, for tax planning purposes, running a limited company may be smoother, as you pay Corporation Tax on profits, and Income Tax on salary and dividends. By contrast, with an LLP you pay Income Tax on all profits. If tax is your driver, then we should run the calculations to see which may be better for you: LLP or limited company.
However, if you plan to run premium, non-electric cars through the business, this is often more tax efficient via an LLP.
In terms of pensions, the amount you can contribute is more straightforward for a limited company but could be profit dependent in an LLP.
Importantly, whichever you choose – LLP or limited – they both protect your liability and your risk, something which is not the case for a sole trader or a traditional partnership.
Clearly, this is a complicated issue, which we explored in our recent episode of Optimum Live, which you can find here.
