LAST month's Budget has left small businesses in the two counties with a tax dilemma, says a leading accountancy body.
Small businesses facing the decision about whether to become limited companies to cut their tax bills need to weigh up whether the savings are worthwhile, the Association of Chartered Certified Accountants (ACCA) has warned.
"The new corporate tax rates, of nil on annual profits below £10,000 and 19 per cent on all profits up to £300,000, are encouraging many to look at changing their status, or incorporating in order to cut their tax bills," said Chas Roy-Chowdhury, head of taxation at ACCA.
People who earn more than £34,515 a year from their small business and who are paying 40 per cent tax rates were finding the idea particularly tempting, according to ACCA's research.
But companies must balance possible savings against the requirement to provide more public information about their business.
"They need to appreciate the constraints which incorporation - becoming a limited company - can bring," said Mr Roy-Chowdhury.
He said many small traders, accustomed to taking money for personal use from their businesses, discovered that becoming a limited company meant they had to treat the money they took as loans, which they would then be obliged to repay to their companies.
However, having a limited company limits losses if a venture fails.
"The Government is clearly trying to tilt the tax system in favour of companies because it wants to be able to see what they are up to," said Mr Roy-Chowdhury.
"While a reduced tax bill may seem attractive, the business needs to have the pros and cons weighed up by a qualified ACCA accountant, before it is set up as a limited, or incorporated, company."
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