In his recent pre-Budget report, the Chancellor, Gordon Brown, signaled the abolition of the zero-rate band for Corporation Tax. Previously the first £10,000 of profits were effectively tax-free, now they face a tax charge of 19%.
Let's face it, this perk was just too good to be true, and it was only a matter of time before the Revenue realised just how much it was costing them.
But incorporation can still be highly beneficial to sole traders, as the following table shows:
Profits
Limited -
Old rules
Limited -
New rules
Sole trader *
£10,000 NIL £1,900 £1,334 £20,000 £2,375 £3,800 £4,334 £30,000 £4,750 £5,700 £7,334 £40,000 £7,125 £7,600 £10,448 £50,000 £9,500 £9,500 £14,548 £100,000 £19,000 £19,000 £35,048
* Assumes an individual under 60 on basic allowances only, and includes Class 4 NIC, but not Class 2. Based on 2005 rates.
The table clearly demonstrates the potential savings that can arise from incorporation, but you are advised to take specific advice before making any decisions.
