Chris Thorpe outlines some potential dangers inherent in incorporating a business.
Many small businesses will start out as sole traders – the owner and the business are one and the same. Personal and business assets are kept apart only by a set of accounts and a balance sheet; and for tax purposes, the sole trader is taxed on the profit, not withdrawals. In effect, they are the business.
Risks inherent within that business, or the high burdens of income tax (or both), may lead to ‘incorporation’ (i.e., transferring the business into a limited company); but is incorporation worth it?
Tax consequences
When business assets are transferred into a limited company, there is usually a capital gains tax (CGT) charge. However, if all assets (except
