Most businesses of reasonable size consider incorporation to be the best route because, in recent years, the tax regime has made it more efficient.

Generally speaking, you should be projecting reasonable profits in order for the tax benefits to outweigh the costs and disadvantages of incorporation.

If you are a sole trader, all you need to do is submit a self assessment tax return, which your accountant will help you compile. A limited company, however, must prepare statutory accounts in a specified format with particular disclosures, together with a corporation tax return, over and above your own self assessment tax return as a director of the company.

Accounts and returns must be filed at Companies House, at which point they enter the public domain, with the consequent disadvantage that details of your business are available to competitors and the general public alike (although ‘small’ companies can file abbreviated accounts which include slightly less information).

There is also the matter of fees. Although Companies Act changes are trying to ease the regulatory burden, your accountancy costs are likely to increase in order to comply with company law and tax regulations.

As well as the tax advantages, other aspects to consider include limited liability and succession. A limited company has a separate legal identity from you as an individual and as such, the personal assets of its owners are somewhat protected. One point to note here is that a company’s largest creditor is often its bank and all banks will ordinarily require personal security from the directors/shareholders of the business. Nevertheless, if the business is likely to incur liabilities then incorporation may be advisable.

Furthermore, incorporation can assist the succession plans of a business since you are able to transfer the shares in a company without changing the legal status of the business. However, there are other factors that should be considered when planning for succession and it is important to obtain professional advice as early as possible to ensure your affairs are structured correctly well in advance of succession.