In recent years many businesses have chosen to incorporate and operate through the medium of a limited company. There are a number of reasons for this but changes in the tax system have played a large part.
In particular the government introduced a 0% starting rate of corporation tax for companies in April 2002. Alongside this, increases in national insurance (NI) rates increased the incentive to avoid these charges. All NI contributions can be avoided by incorporating, taking a small salary up to the threshold at which NI is payable and then taking the balance of post-tax profits as dividends. Clearly this is to simplify a complex area and there are many factors to consider, both tax and non-tax, in making the decision to incorporate but it serves to give some background to the changes that the government is now putting in place.