How Business Structures Affect Taxation

Different business structures come with different tax rules. If you choose the wrong one, it can cost you more money. Here’s how some common business structures in the UK affect taxes:
Sole Trader: You pay income tax on your profits. If your earnings go above £125,140, you pay up to 45% tax. You also have to pay National Insurance contributions.
Partnership: In a partnership, you and your partners pay tax on your share of the profits. Like sole traders, partners also face unlimited liability, which means your personal assets could be at risk.
Limited Company: A limited company pays corporation tax at 25% on profits over £250,000. Company directors pay tax on dividends, which are taxed at lower rates than personal income. However, running a limited company involves more paperwork.