There has been a wealth of posts on this subject, some giving excellent advice and some giving not so good advice.
I am not sure what mine falls under but will give you my thoughts.
First things first, consider the IR35 question before moving on.
Once satisfied, tax considerations.
Currently, on annual net profits of £50,000, the company option will save you up to £3437 per year in tax. (I am working on the basis of personal allowance salary balance dividends)
Differential pension treatment between that of a company and as a sole trade or partnership will also benefit you.
So in tax terms it first appears to be a no brainer.
Unfortunately there is a lot more to consider.
If you go limited then your accountants fees will most likely rise by iro £1,000 compared to a non incorporated trade. This will reduce the tax gain.
If you run a car through the business then depending on the car you drive this will also have a significant impact on your tax bill. An older car would mmost likely be more attractive through a limited co - a gas guzzling 4x4 would be much more beneficial running through a sole trade or Partnership.
Tax credits can be adversely affected by your choice due to dividends being grossed up - so exactly the same actual income would be treated differently for tax credits and affect the amount received.
Corporation tax rates / income tax rates - The former is rising, the latter is falling.
This government has moved the goalposts with regard to taxation of small companies more in the last five years than in living memory - who knows what is next? Income shifting will be in in some shape or form in one year, and don't rule out NI on dividends for close companies (once the election is out of the way, of course)
And once you have incorporated and got all of the reliefs then you won't get any more, or find it as easy, to go back the other way should the above come to fruition.
Then there is all the other stuff that is always bought up:
Limitation of liability - How important is that to the business?
Perception - How important is that to the business?
Administration - How good are you at it?
Directors Duties - More onerous than that of a sole trader
Loss relief - Important consideration
Associated companies - If so could increase the company tax rate.
Profit extraction - In particular dividend paperwork must now be watertight and can only come from profit.
Critical illness cover - Los salary / high dividend, are dividends taken into account by your insurers? If not could be a nasty surprise when you most need the cash.
The trouble is that a lot of advice given is to go limited due to the immediately apparent tax advantages of low salary / high dividend, and people are quick to take it up due to them naturally wanting to retain more of their hard earned profit. Yet many of the above points are not always considered and they need to be.
Don't get me wrong - my opinion is that the limited company route remains an attractive solution to many, but those who decide to go into it should do so with their eyes open and aware of the full facts. And what suits one doesn't always suit another - there is no standard answer without knowing the full facts of someones business, and even their personal traits.
Don't make this decision lightly.
