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Business Tax Advice

The most important word to bear in mind when you start out in business is ‘preparation’, so spending some time creating a business plan can be invaluable it will bring to mind many issues which you may not have considered, such as;

 

How you are going to finance the busines,

Level employees and your business structure,

Do you want to run the business by yourself or in partnership with someone else,  would you rather trade under the umbrella of a limited company?

 

Sole Trader

 

This is the simplest form of business since it can be established without legal formality. However, the business of a sole trader is not distinguished from the proprietor’s personal affairs

 

Partnership

 

partnership is similar in nature to a sole trader but because more people are involved it is advisable to draw up a written agreement and tor all partners to be aware of the terms of the partnership. Again the business and personal affairs of the partners are not legally separate.

 

Company

 

The business affairs are separate from the personal affairs of the owners but there are legal regulations to comply with.

The appropriate structure will depend on a number of factors including consideration of taxation implications, the legal entity, ownership and liability.

 

Limited Liability Partnerships (LLPs)

 

LLPs are a half-way house between partnerships and componies They are taxed in the same way as a partnership but are legally a corporate body. This means thai the personal affairs of the members can be separated from the business affairs.

Important Choices

Some matters are broadly the some no matter which route you take.

Year end

 

Choosing the right year end may in some circumstances, defer a tax bill but there will also be other commercial issues to consider

 

Expenses

 

Tax will be due on the profits of your business but not all expenses the business incurs are tax deductible Careful thought needs to be given as to when and how much money is going to be spent

Tax Tip

 

There are various ways of extracting profits from a company although careful consideration of the level and method needs to be given. For example payments by the company to an approved pension scheme are tax and Nl free!

In general, it is best to incur expenditure just before rather than just after the year end, as this will accelerate your tax relief However, it is important that you keep proper and comprehensive business records so that relief may be claimed. Examples of the type of expenditure to consider bringing forward include:

• building repairs and redecorating

• advertising and marketing campaigns

• redundancy and closure costs

• expenditure on plant and machinery.

 

Unincorporated Businesses

 

Whether you are a sole trader, partnership or LLR your profits will be taxed on a ‘current year’ basis, so that the business is taxed on the profits it makes during its lifetime; for example, if the business makes up accounts to 30 April each year, the profits for the year ended 30 April 2013 will be taxed in 2013/14.

 

By choosing the most appropriate accounting date, the payment of tax can be delayed, with significant cash flow advantages.

 

Unincorporated businesses usually pay higher rates of tax than a company but significantly less Nl.

 

Administrative costs are generally lower but you are personally liable for debts the business may incur. LLPs go some way to addressing this issue

 

Limited Companies

 

limited company may be advantageous, as the director’s ore not personally liable for outstanding debts. However, a creditor, such as a bank, may require personal guarantees from the director.

 

Tax rates paid by the company may be lower than those paid by an unincorporated business However, there are effectively two layers of tax, one payable by the company and the other payable by employees/directors. Thus, profits made by the company need to be extracted by the directors in the most tax efficient manner.

 

You may wish to consider extracting profits in the form ot dividends rather than as increased salary or bonus. This can result in substantial savings in Nl. Planning should be undertaken before any money is taken out of the company.

 

Paying the Tax

 

The self employed may have to pay tax three times a year, namely:

• 31 January in the tax year

• 31 July following the tax year

• 31 January following the tax year.

In certain circumstances, the first two payments can be waived.

 

For limited companies, the payment system can be more complicated

• PAYE and Nl needs to be paid monthly even if the director is the only employee (although for smaller businesses it can be paid quarterly)

• for most companies corporation tax is payable nine months and one day after the ena of the accounting period

 

As you can see, there are many issues to consider in deciding the best vehicle for your business. Pleose contact us to discuss the situation in detail

And finally – a word of warning

Many family businesses over recent years have sought to maximise tax and Nl savings by introducing an otherwise non-working family member or spouse into the business, sometimes as a co-owner

 

Transferring assets or interests in a business between husband and wife has always attracted the interest of HMRC. Transfer of ownership of assets have always had to be real and complete, with no right of return and no right to the income on the asset given up

 

However, it appears that HMRC wish to introduce wide-ranging rules to try and block what they see as abusive tax planning from at some stage in the future.

 

How we can help

 

Whilst some generalisations can be made about business tax advice it is always necessary to tailor any advice to your personal situation therefore if you need Business Tax Advice please contact KRA below  so we can arrange a No obligation FREE initial meeting at your premises or our office to carry out a business review.

 

If you are interested in instructing us we will offer you a FIXED FEE accountancy service with no hourly charges or hidden costs.

contact us

 

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