Joe Brough looks at the relative tax positions for companies and unincorporated businesses and the tax implications of disincorporation.
As the tax benefits of trading via a limited company have been gradually whittled away, and in view of the additional administrative costs, business owners may be considering whether disincorporating is the right decision for them.
The basic tax position
The starting point for any disincorporation decision will usually involve a comparison of the tax liability when operating as a company against the equivalent position of being a sole trader.
For example, if profits totalling £50,000 are fully extracted by a one-director company, after allowing for a salary equivalent to the personal allowance, more income will be retained if they were trading as a sole trader.
