Corporate Structure in a Care Business Setting : The Key Issues
Albert Goodman has looked after care providers in the form of sole traders, partnerships and limited companies for many years.
Should you consider incorporation?
Here, Director Julie Hopkins considers the main advantages and disadvantages.
Personal asset protection is always a key factor when considering incorporation, as a company is a separate entity and distinct from its shareholders. Without personal guarantees, business owners should have limited liability for business debts and obligations.
Being a limited company can add commercial credibility to a care business, and provides added protection for its name and business branding. It also means that the company can continue to exist even if the ownership or management changes.
From a tax perspective, sole traders and partnerships are liable to the variable rates of income tax and national insurance; whereas a company is liable to corporation tax with the current legislation heading towards 17% by 2020. A company can deduct director salaries, whereas with a sole trader or partnership the extraction of profits from the business are via ‘drawings’ even though they are taxed on the profits. Various tax planning measures are available when growing and exiting a company.
A company structure can also encourage greater investor investment.
A company is subject to increased regulatory formalities and thus expense, and a director must adhere to his/her responsibilities.
Extraction of remuneration is usually in the form of a salary and dividends, the latter now subject to its own ‘tax on dividends’ legislation. Losses in a company may be ‘group relieved’ depending upon the group structure, but cannot be personally claimed.
An exit strategy may have to consider different types of liquidation with additional administrative costs and tax implications.
Each corporate entity which trades as a care business is subject to the Care Quality Commission fees.
In the next newsletter Julie will consider the types of corporate structure available. In the meantime, if you would like an initial free consultation on how and whether to incorporate please contact firstname.lastname@example.org or telephone 01935 423667.
Chandler & Co do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
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