Types of UK companies and applicable taxes

Some of the oldest companies registered in the U.K. are: The Ashford Cattle Market Company Limited, formed in 1856, The Cupar Corn Exchange Company Limited, formed in 1860, and The Rye Cattle Market Company Limited, formed in 1859. I get the feeling, farming was big in those days. In this video, I'm going to talk through the different types of companies and explain the primary business tax that's applicable to companies. Limited companies are businesses that have incorporated, but simply this means they've completed the relevant forms to become a limited company, and therefore, they've been issued with a certificate of incorporation. The structure of this business is different, sole traders and partnerships. Companies have directors and shareholders, whilst sole traders and partnerships have owners. In small companies, the directors and shareholders could be the same person, but the key difference is that the company is a separate legal entity and the directors and shareholders are separate legal entities. From a tax point of view, this means that the company needs to pay its own tax, namely corporation tax, and the directors and shareholders need to pay their own tax, namely income tax and National Insurance. A limited company could range from a one-person business, where the director is the sole shareholder and the only employee in the business, to a company with hundreds or even thousands of employees with multiple shareholders. Normally, though, limited companies are family-owned businesses with a few directors and a few shareholders. Usually, family members, friends, or colleagues that have come together to form the business. This is why limited companies are sometimes referred to as private limited companies. On the other hand, public limited companies, or PLCs for short, have their shares listed on the stock exchange, which means that their shares can be bought and sold by anyone. They're publicly available, hence the term "public limited company." PLCs also pay corporation tax whilst the directors and shareholders pay personal tax. Directors receive a wage which is subject to income tax and National Insurance. Shareholders receive dividends which are also subject to income tax, and if they sell their shares for a profit, they'll need to pay a capital gains tax. I do cover these personal taxes separately, but in this course, I'm going to focus on business taxes. Just for awareness, there are a few other types of business structure in the U.K., such as limited liability partnerships, community interest companies, not for profit organisations, charitable incorporated organisations, and co-operatives. In this course, however, I'll be focusing on the four main business types: Sole traders, partnerships, limited companies, and PLCs. In summary, sole trader and partnership owners pay income tax and National Insurance on their businesses profits, whilst limited companies and PLCs pay corporation tax on their profits. If it's a company, it has directors and shareholders who are deemed to be separate legal entities from the company, and they pay income tax and National Insurance on wages and dividends. So going forward, always consider the business structure when thinking about what type of business tax it will pay, and make the important distinction between business owner, employee, company, and shareholder.