What are the tax benefits of forming a limited by shares company?

The corporation tax payable on limited company profits is lower than the higher rates of income tax payable by sole traders and partnerships. In addition, although directors are paid a salary that is subject to income tax and NI payments, a limited by shares company director can utilise their personal tax-free allowance to avoid any income tax deduction. Limited companies can also voluntarily register for VAT, offering cashflow benefits by allowing companies to charge VAT on sales and claim it back on purchases.