Hiding from the taxman

Tax is payable on profits of a sole trader or partner, regardless if you take the profit out of the business or not.  With a Limited Company you can leave the profit inside the company and only pay 20% tax. This can be useful if you have fluctuating profits in your business.

If your profits go up and down year by year then if you are a sole-trader or partner you could be taxed at higher rates of tax one year and lower rates of tax another year. It could be that you do not use your entire lower rate tax band so over the years you could end up paying more tax.

Using a Limited Company to trade allows you to avoid being caught in this trap because you are taxed on what you actually take from the company, not what profit the company makes. This means you can even out your personal taxable income and basically legally hide profits from the taxman.