Showing posts with label incorporation relief. Show all posts
Showing posts with label incorporation relief. Show all posts

Friday, December 5, 2014

Surprise changes on incorporation relief

Earlier this week, George Osborne announced during the Autumn Statement some major changes to the tax reliefs available when an unincorporated business transfers into a related company (e.g. a sole trader transferring their business into a Limited company that they also own).

It has been common practice in the past to start a new business as a sole trader business and then incorporate at a later date. The benefits were multiple. First, because a sole trader business can carry back losses, if one creates a business with high startup costs, tax relief can be carried back and offset against tax paid in previous years, including tax payed on employment earnings. For someone leaving the corporate world that's a nice incentive and this has not changed.

What has changed however is the relief available when changing the status from sole trader to limited company. Indeed once the losses have been offset against past earnings, using a limited company is much more tax efficient especially because it's possible to avoid national insurance to a large extent. In the past the incorporation process would have generated 2 significant reliefs. They are now gone.