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This briefing note contains comparisons of the rates of tax
affecting two types of business structure for a typical UK trading
or professional business with UK resident owners and employees. It
does not cover situations involving special types of activity that
can attract particular tax rates (for example where the bank
payroll tax or debt cap restrictions apply for corporates), nor the
availability of loss reliefs to offset taxable profits (for example
group relief in the context of companies, or sideways loss relief
in the context of individuals).
Comparison of top rates of tax
This table compares the top rates of tax using a limited company
structure or a partnership structure. The comparison is made in the
context of different types of stakeholder. In the context of a
company the rates applicable to stakeholders are compared for the
entity itself, an individual shareholder, a corporate shareholder
and a director employee. In the context of a partnership the rates
applicable to stakeholders are compared for the entity itself, an
individual partner and a corporate partner.
In the context of individuals, no account is taken of the
marginal rates that can apply where personal allowances are
withdrawn, nor interaction with any restriction of relief for
pension contributions. In the context of a corporate shareholder it
is assumed that any dividends received would qualify for one of the
dividend exemption categories in CTA09 part 9A.
Comparison of effective rates of tax
This table compares the rates of tax on extraction of profits by
a UK resident individual from a business and two different profit
levels in the following circumstances:
a non-corporate business, for example a self employed
person;
a business undertaken through a company where all profits are
extracted via salary payments;
a business undertaken through a company where all profits are
extracted via dividend.
In calculating the tax rates in each case the following
assumptions have been made:
the individual is able to extract all taxable profits from the
business;
the individual has no other income or gains and no access to
any tax reliefs;
the individual has a standard personal allowance;
the company (where there is one) is subject to the small
company rate of corporation tax.
Please note the effective tax rates will change according to
different profit levels, the extent to which any reliefs are
available, and the level of other income and gains received by the
individual.
Top Rates of Tax
Note: The table shows the effective rates on the top slices of
income and various simplifying assumptions have been used.
Notes to Top Rates of Tax table:
Comparison of effective rates of tax
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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If you are an individual moving to the UK your UK tax treatment will depend on whether you are "resident", "ordinarily resident" or "domiciled" in the UK.
The Government is consulting on how to change two aspects of the partnership tax rules in order to prevent tax loss arising from disguised employment relationships through limited liability partnerships and from certain arrangements involving the allocation of profits and losses among partnership members.
George Osborne has written to the Irish Minister of Finance in preparation for the G7 Meeting on 14 May in Dublin, concerning the shared agenda on tackling global tax evasion and avoidance.
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