Incorporation Many businesses start as sole traders or partnerships, and become companies later, which is called incorporation. Other businesses trade as companies from the beginning. Discuss with your accountant which is best for you. When your profits are high enough for you to be paying surtax at the 40% rate, then it is time to think about incorporation, which we can advise you on. The merits of incorporation are savings on National Insurance Contributions and on surtax. The demerits are more bureaucracy, a higher accountancy fee to match, use of home as office is not deductible, and changes to the way in which a car used in the business is treated. Generally the merits outweigh the demerits. Savings on National Insurance Contributions and surtax can be re-invested in the business to help it grow and to create employment. If you want to extract profits, it is normal for each director to take a small salary to cover the personal allowance, and then to take the rest as dividends. Dividends We can help you with the paperwork needed to declare a dividend. We will remind you to consider declaring an appropriate dividend every year even if you don’t actually withdraw any cash. You can leave the dividend sitting as a credit balance on your director’s current account, while the cash it represents stays in the business. Someday you might need a lot of cash quickly, and building up a credit balance year by year ensures that you will only ever pay tax at or near the basic rate.