A Sole Trader
As a sole trader, you will benefit from an increase in the personal income tax allowance. From next April, the tax-free allowance will increase by £1,000 to £7,475 per annum. This means you will not pay any income tax on the first £7,475 you earn.
If you are a sole trader and make a profit in excess of £37,400, consider incorporating your business to a limited company to take advantage of the lower corporation tax rates.
A Partnership (not including a limited liability partnership)
Similar to sole traders, each partner will benefit from an increase in personal income tax allowance to £7,475 per annum.
For businesses operating as a partnership, the profits can be allocated appropriately between the two partners to absorb two sets of personal allowances and the basic income tax rates. Nonetheless, a partnership should not be artificial and needs to be clearly evidenced including paperwork, bank account and the duties of each Partner.
A Limited Company
There is also some good news for limited companies.
Starting from 1st April 2011, for headline rate of Corporation Tax (for companies with profits of £300,000+) will be reduced by 1% each year until it reaches 24%.
The Small Companies Corporation Tax (for companies with profits of less than £300,000) rate will also be reduced next year from 21% to 20%.
Moreover, if your company employs staff, the threshold at which you start to pay Class 1 National Insurance will be raised by £21 per week in April 2011.
The points raised above are only intended to provide general information. Professional advice should always be sought in specific situations before taking any action.
Jeffreys Henry LLP are a leading firm of chartered accountants and business advisors in London. For more information visit www.jeffreyshenry.com or call 0207 3092222.