Business Vehicles - Taxation

Tax Treatment

No separate taxable entity - sole trader taxed as individual with trading activity

No separate taxable entity - partner taxed as individual on a notional trade representing his share of the partnership

Separate taxable entity - company taxed on all profits and gains of trade. Owners only taxed if profits extracted

Trading Profits

Income tax at 20%, 40% or 45% on all taxable trade profits

Income tax at 20%, 40% or 45% on partner's notional taxable trade profits

Corporation tax at 19% on taxable trade profits

Trading Losses

Can be set off against:

Can be set off against:

Can be set off against:

other income from the current year

other income from the current year

other income and capital gains from the same year

other income from the previous year (temporarily extended to the previous three tax years)

other income from the previous year (temporarily extended to the previous three tax years)

other income and capital gains from the previous year (temporarily extended to the previous three accounting periods), and

profits from the same trade in future years, 

and

profits from the same trade in future years, and

other income and gains in future years

capital gains in the same year (in limited circumstances)

capital gains in the same year (in limited circumstances)

Capital Gains on Disposal of Business

Capital gains tax at 10% or 20% on chargeable gains (except for residential property or carried interest which are taxed at 18 or 28%) depending on tax bands

10% if business asset disposal relief (BADR) (formerly entrepreneurs' relief) available

Capital gains tax at 10% or 20% on chargeable gains on the basis of the partner's allocation under the asset surplus sharing agreement (except for residential property or carried interest which are taxed at 18 or 28%) depending on tax bands

10% if BADR available

Corporation tax at 19% on all chargeable gains arising in the company

Capital gains tax at 10% or 20% on disposal of the shares depending on tax bands, or 10% if BADR or investors' relief available

Capital Allowances

Available on eligible business assets

Available on eligible business assets

Available on eligible business assets

VAT

Required to register if threshold reached

Partnership registers in own name (or in name of general partner if a limited partnership) if threshold reached

Company registers in own name if threshold reached

National Insurance Contributions

Class 2 at £3.05/wk *

Class 2 at £3.05/wk *

Only payable if company pays out remuneration to employees

Class 4 at 9% of trading profits between £9,568 and £50,270, and 2% in excess of £50,270

Class 4 at 9% of the partner's notional trading profits between £9,568 and £50,270, and 2% in excess of £50,270

Secondary Class 1 at 13.8% of remuneration paid in excess of £170/wk (subject to an employment allowance of £4,000)

Primary Class 1 paid by the employee at 12% of earnings between £184 and £967/wk, and 2% in excess of £967/wk

Tax on Profits

Tax due on trading profits (as set out above) automatically regardless of whether profits extracted

Tax due on trading profits (as set out above) automatically regardless of whether profits extracted

Owners not taxed on profits unless extracted by way of remuneration or dividend. Owners taxed on remuneration (at income tax rates as set out above for trading profits of sole traders and partners) or dividend (at rates of 7.5%; 32.5% or 38.1% on dividends in excess of £2,000 in a tax year)