Issue 3 - The Business Structure

Ian's comments are very helpful. They just illustrate again that developing numerical theory into practical practice can expose all sorts of pitfalls.

The comments by Richard Hobcraft are very relevant and I agree with his concerns. I am also worried by the notion that a Small Business that is incorporated can plan to pay the proprietor his income by way of a small amount of salary and then a dividend for the rest.

Two of my worries are that in following this route

a)the owner may find that on many occasions when credit or loan finance is required he cannot show sufficient "earnings" to satisfy the potential lender.
b)the owner may deprive himself of the ability to provide satisfactorily for his pension.

As soon as these points are a concern to the owner he is faced with - possibly - increasing the salary with the attendant increase in the tax liability (including ERNIC) so the gap narrows between incorporation and self employment.

I find that the prospect of paying employers NIC on one's own profits is one of the issues that sways the mind of a number of clients who have contemplated starting up their new business as a company.

And finally I agree with the comments that highlight the flexibility available to the businessman who sets himself up as self-employed. This is a significant factor in my mind, I must say.

Lastly may I just list Annual Returns; formal accounts; Registered Office; Company Secretarial Work. The smaller businesses do not care to be bothered by this admin stuff! Nor do they want to pay us for it to be done.

In closing may I say that I think the first four issues have been great; informative and very helpful. I hope you manage to sustain the momentum then this will become a most useful tool for the small practitioner.

This is a good point, and illustrates once again that all possible factors must be considered before incorporating a small business. Profits and yearly income tax or corporation tax are only one part of the story.

With all the hype about incorporation at present, I am a bit concerned that not enough thought is being given to how this will effect the tax liability on the eventual disposal of the business. It is assumed that the purchaser will be happy to buy the shares, in which case the vendor will be able to claim full business taper relief (assuming the shares have been held for at least two years). But will the purchases want to buy the shares. He will be buying shares in a company which may have hidden liabilities. If he buys the business assets he avoids this problem and if the purchaser is a company and they are paying a substantial amount for goodwill they can claim tax relief on the annual write down (not available to the vendors if the goodwill was purchased or created before 1.4.02).

If the business assets are sold rather than the shares, there will be a gain in the company taxable at the Company's marginal rate. If the goodwill included in the sale was created by the company and sold for say £500,000 this will be 30%. Following the disposal, the company may no longer be a trading company and futher tax problems will arise. A high price to pay for minor gains when the profits were only £50,000 per annum!

Has anyone any thoughts on this.

One of 'the hottest topics' being discussed here right now, per the photo above, is where does a chap get such a suntan in the hot wet season? Or as its colloquially known- British Summertime.

Partnership Act 1890- watch for Scots Law take on joint and several liablilty.

Actually I live on the South Coast, and if the sun ever shines (even for 1/4 hour), I am either in the garden or down at the beach. The photo concerned may have contained some residue from my two trips to Tunisia last year.