Single Person Company
Single person companies became popular in 2003 and as the name suggests they are formed by a single employee. It is a legally recognised business structure that allows contractors and freelancers to work in the UK. The increase in popularity was a result of Gordon Brown (chancellor at the time) introducing a £10k tax free band of small business corporation tax.
How did Single Person companies work?
Single person companies were similar in nature to composite companies. Contractor’s wages were split into two parts which consisted of a basic wage and business expenses. In many instances business expenses would be used to reduce the amount of corporation tax paid.
Why Single Person companies were used by Contractors?
Many contractors setup these types of companies because of the financial benefits open to them. Reduced tax rates would result in an increase in take home pay almost 350 a week.
Single person companies only lasted for around four years as new legislation was introduced in 2007 to shut them down. The legislation put an end to wage payments in dividends and was called Tackling Managed Service Companies.
