Why do small business and one directors get limited company tax is higher and legislation is tighter?

Question

for example you need to still pay income tax and now also corporate tax too. Plus you will need to pay an accountant for your accounts. Hardly makes sense for a small one man business. (just so ppl dont say you need two people to make a company - you dont as you can get one member ones too).

Answer 1

the important word is limited. If it is a limited company, of course it is more expensive, but if the company goes bust and owes loads of money, you don't face the prospect of your debts having to be settled by selling your house or other possessions. basically you lose what you put into the business and nothing more, there is no cross-over with your personal cash. With a standard partnership or similar, the debts can be enforced on the partner's personal wealth

Answer 2

One reason a sole trader may incorporate his business is to take advantage of the limited liability.  A company can often be used to bring a family member into the business with the intention of passing it to them when the original owner dies.  This can be simpler than transferring a business outside a company.

As far as tax goes you are right.  There is little saving although it does not cost a lot more.  Salaries which have borne income tax are allowable in the company's accounts so corporation tax is not due on the same income.

The main incentive is with national insurance.  Any profits paid out as dividends do not attract national insurance contributions.  This saving can more than offset the extra costs involved.

Answer 3

What is the reason for the business being separate from the individual ? Is it to reduce liability in the event of litigation or loss or bankruptcy ? If you don't want double taxation as you claim, then unincorporate and put everything under your name and pay only one income tax.