Tax Planning & Structuring

Benefits of incorporation include wanting to retain profits in the business, planning significant growth, needing limited liability protection, or building value for eventual sale. Benefits of remaining unincorporated include less compliance and lower tax in several cases. We model your specific numbers comparing sole trader vs limited company taxation, factor in National Insurance savings, and show you the precise breakeven point according to your case and long-term strategic goals.

Incorporating at the start of your tax year can simplify the transition. When there is significant business growth and the company intends to retain profits after tax for future plans, incorporation can be highly tax-efficient, particularly once profits increase above £50,000, where corporation tax rates (19%–25%) are generally lower than the higher income tax rate of 40%. Dividends are not subject to National Insurance Contributions, although salaries paid through a company may still attract employee and employer NIC depending on thresholds. However, additional accountancy costs must be considered (typically £1,200–£3,000 more for micro companies).

Example — 2025/26 tax year (England & NI rates). On £100,000 of profits, a sole trader pays approximately £30,689 in income tax and Class 4 National Insurance. Run through a limited company, with the director taking a £12,570 salary plus £17,430 in dividends (£30,000 extracted), the combined bill across company and director is approximately £21,735 — £19,118 corporation tax, £1,481 dividend tax, and £1,136 employer National Insurance — a saving of around £8,954. Note: this assumes the remaining profit stays in the company. Extracting the full £100,000 personally would substantially reduce the saving.

The dividend allowance for 2025/26 is £500, meaning the first £500 of dividend income is tax-free. This is a significant reduction from £1,000 in previous years. Dividend tax rates will increase from 2026/27 for both basic and higher rate tax bands by 2 points each — taxed at 10.75% for basic rate taxpayers and 35.75% for higher rate.

Yes, pension contributions are one of the most tax-efficient ways to reduce tax liability. Personal contributions receive tax relief at your marginal rate. Company pension contributions are even more efficient for limited companies: they are fully deductible against corporation tax, do not create income tax or National Insurance charges for directors, and the company saves Employer’s National Insurance. For 2025/26, the annual allowance is £60,000 (or 100% of earnings if lower).

Allowable expenses must be wholly and exclusively for business purposes. Common claims include office costs, business travel and accommodation (excluding ordinary commuting), marketing and advertising, professional fees and subscriptions, insurance, equipment and software, staff costs, training relevant to your business, and business use of home.

Business Asset Disposal Relief (BADR) offers a reduced Capital Gains Tax rate of 18% (from April 2026), subject to a lifetime limit of £1m, for individuals who dispose of the entirety or part of a business or shares in a trading company. BADR may also apply to disposals of business assets or shares after trade ceases or as part of an individual’s withdrawal from a partnership or company.

IR35 (off-payroll working rules) affects contractors working through intermediaries. If HMRC determines you are essentially an employee of your client (based on control, substitution, and mutuality of obligation), you must pay income tax and National Insurance as if employed, losing limited company tax benefits. We help assess your contracts, advise on IR35 status, suggest contract amendments to support outside-IR35 status where appropriate, and ensure compliance.

Under the Corporation Tax Self-Assessment (CTSA) system, companies must notify HMRC of their tax liability, complete and submit annual returns, and calculate and pay the due tax. The standard payment date is nine months and one day after the accounting period ends. Large and very large companies must pay quarterly instalments.

Voluntary VAT registration below the £90,000 threshold can benefit businesses that purchase significant VAT-able goods and services. You will reclaim input VAT on purchases, potentially improving cash flow substantially if your expenses are high. However, you will charge VAT on sales (making prices 20% higher unless you absorb it) and face quarterly VAT return admin. It is particularly beneficial if your customers are VAT-registered. We calculate whether voluntary registration saves money by modelling your specific revenue, costs, customer base, and VAT scheme options.