13 December 2005    |    Uncategorized

Chancellor abolishes zero-rate band for Corporation Tax

In his recent pre-Budget report, the Chancellor, Gordon Brown, signaled the abolition of the zero-rate band for Corporation Tax. Previously the first £10,000 of profits were effectively tax-free, now they face a tax charge of 19%.

Let’s face it, this perk was just too good to be true, and it was only a matter of time before the Revenue realised just how much it was costing them.

But incorporation can still be highly beneficial to sole traders, as the following table shows:

Profits

Limited –

Old rules

Limited –

New rules

Sole trader *

£10,000NIL£1,900£1,334
£20,000£2,375£3,800£4,334
£30,000£4,750£5,700£7,334
£40,000£7,125£7,600£10,448
£50,000£9,500£9,500£14,548
£100,000£19,000£19,000£35,048

* Assumes an individual under 60 on basic allowances only, and includes Class 4 NIC, but not Class 2. Based on 2005 rates.

The table clearly demonstrates the potential savings that can arise from incorporation, but you are advised to take specific advice before making any decisions.

Disclaimer

The information provided is for general information purposes only.

Legislation and details may have changed since this was written.  The text may not include all matters that are relevant to your individual situation.

You should not make decisions, or refrain from making decisions, without taking further professional advice about your specific circumstances.

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