All That Glitters...

With a starting rate of corporation tax of only ten per cent incorporation perhaps never seemed more attractive. As Robert Jamieson noted in a Loose End entitled 'To incorporate or not?' in Taxation 20 July 2000 at page 425 the break-even point for incorporation of a sole-trader's business may be as low as £43 000 for 2000-2001. His calculation assumes that £9 000 (net of corporation tax) is left in the company to take advantage of the ten per cent rate. This is a very useful point of reference but there is no tax saving at that level. Moreover there would be further tax payable by the director on extraction of the funds left in the company and therefore one would not normally recommend incorporation in these circumstances unless there are non-tax considerations involved or unless tax savings can be identified...