Contents
All change for pensions
A waste of time & money
Tax credit mess
Fuel up (shock)
Gimme shelter
Gulp! SIPPS
Paper or plastic?
Re: Mortgages
Bank the cheque
Subs beware
VAT's the limit
Dividend end?
The buck stops
Sack with care
Selling up
A matter of trust
We're watching
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Many small businesses operate as companies. Sole trader incorporate for many reasons, not least the tax savings available. There's more red tape and paperwork to deal with as a company, but the benefits can make it worthwhile. There is one big problem, though, with adjusting to "being a company". Legally, the company is a person - a separate person from the shareholders who own it and the directors who run it. In a small business, it's likely that the shareholders and directors will be the same people - often one person, or a married couple - and it's tempting to think that nothing much has changed from the position as a sole trade or a partnership, apart from saving tax. It isn't so. The company's money belongs to the company, and if it's paid to the shareholders - or used for their benefit - then it counts as a dividend. If it's paid to the directors - or to buy something for them - it's salary. Moving money out of the company has a tax consequence. In a sole trade or partnership, money coming into the business is taxed immediately on the owners, so the business bank account really is their money to do what they want with. Taking it out has no further tax charge. The tax saving for a company usually depends on paying money out as a dividend, rather than as salary. Salary is subject to higher rates of tax. But to pay a dividend requires some red tape - the company must have made enough profit to pay it, after taking off any tax liabilities the company itself has. It isn't just a matter of there being enough cash in the company's bank account to pay for the holiday you want to take. You are supposed to look at the profit and loss account and declare a dividend. It's possible to run a company quite simply, as long as you remember the basic rules. If you break the rules, the taxman is likely to take away the advantages you thought you were going to get. We can help you keep on the right side of the lines. |
© Bayar Hughes & Co., 2010.