Corporation Tax
Unlike sole traders or partnerships a company is not subject to income tax, instead a company pays corporation tax.
The allowances and rates under the corporation tax regime are different to those under the income tax regime.
For sole traders and partnerships no account is taken of drawings when calculating tax and profit. For companies consideration is taken of drawings when calculating profits subject to corporation tax.
This means that money can be extracted from a company in a variety of different ways in order to maximize tax efficiency, such as salaries, dividends, repayment of loans, pension contributions and rental payments. Also from a tax planning point of view, a group company structure can be created allowing assets to be transferred within the group without any adverse tax consequences, thus allowing certain assets and liabilities to be ring-fenced within the group with no tax penalty (provided the relevant clearances have been obtained).
The allowances and rates under the corporation tax regime are different to those under the income tax regime.
For sole traders and partnerships no account is taken of drawings when calculating tax and profit. For companies consideration is taken of drawings when calculating profits subject to corporation tax.
This means that money can be extracted from a company in a variety of different ways in order to maximize tax efficiency, such as salaries, dividends, repayment of loans, pension contributions and rental payments. Also from a tax planning point of view, a group company structure can be created allowing assets to be transferred within the group without any adverse tax consequences, thus allowing certain assets and liabilities to be ring-fenced within the group with no tax penalty (provided the relevant clearances have been obtained).
