Trading Style – Getting the Legal Structure Right

A Consultant earning in excess of over £150,000 per annum could suffer income tax at 50% and national insurance at 2% (total 52%).

No-one expects tax bills to fall for several years so any opportunity to reduce tax rates or utilise additional tax allowances and reliefs must be explored.

One way of doing this is to consider which legal structure is the most ‘tax’ appropriate for your private income.  You could choose from four main legal structures:-

  • Sole trader
  • Partnership
  • Limited liability partnership
  • Limited company

Choosing the most appropriate legal structure could allow a consultant to achieve the following:-

  • Split some of their income with a spouse or civil partner
  • Cause income to be taxed at 40% or 20% rather than 50%
  • Reduce national insurance contributions to 0%
  • Shelter income in a corporate structure where it will suffer tax at 20% rather than 50%

However, tax is not the only consideration and, not all contracts give you the freedom to choose your legal structure.  Each consultants circumstances are different and this type of tax planning is not appropriate for everyone. 

We are experienced in considering all these relevant issues.  Please call us if you would like to discuss all your individual circumstances.