There are three main ways that a business can be formed;
- Limited Companies
- Sole Traders
Limited companies (whether public or private) are incorporated bodies and as such have their own legal existence that is distinctly separate from that of the owners. The profits generated from limited companies are subject to Corporation Tax.
Sole traders and partnerships are both unincorporated businesses, which means that there is no legal separation between the owner(s) of the business and the business itself. As a result the profits from these businesses are dealt with under Income Tax, where they are assessed directly in relation to the business owners (the sole trader or the partners). This is the same income tax that most of us pay on our income from employment or savings.
Business owners disposing of certain business assets, could result in a chargeable gain(s), however limited companies and sole traders/partnerships are affected differently. Chargeable gains incurred by limited companies are included in their taxable total profits chargeable to corporation tax. Whereas chargeable gains incurred by sole traders or partnerships are taxable under Capital Gains Tax.
If you need help understanding how Business Tax affects you, please contact us and we will be delighted to help.