TSH Master Class Business Structure and Tax Efficiency

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The key points and highlights from Howard Weintrob’s presentation “Business Structure and Tax Efficiency” …

The key points and highlights from Howard Weintrob’s presentation “Business Structure and Tax Efficiency”

In a Sole Trader business structure, potential savings between 40% tax rate and company tax rate of 20% if excess profit is retained.

Self-employment/partners can achieve significant NI savings.

It is quite popular to pay dividends to avoid NI but companies must generate a profit to pay dividends!

Limited Liability Partnership combines the benefits of being taxed personally but with limited liability protection.

For sole trader/partner, losses in the first 4 years of trading can be carried back to the last 3 years’ income and obtain a refund.

The Research and Development project must seek to achieve an advancement in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty and not simply an advancement in own state of knowledge or technology.

The expenses allowed for tax purposes are anything incurred WHOLLY and EXCLUSIVELY for the business and are of a revenue nature.

Enterprise Investment Scheme is a tax efficient way of investing into a company as investors obtains 30% tax relief but must be for less than 30% of share capital.

Howard’s presentation was part of TechStartHub Startup Masterclass: How to make sure you’re investment and exit ready held last November 8 at University College London – Roberts Building. The next masterclass, Expert Advice on Website Content Strategy, Analytics, and Community Building, will be held on November 28 at the Innovation Warehouse.

by: Cris Kerwin Pabuaya

More in: Business , Technology
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  • 1. BUSINESS STRUCTURE & TAX EFFICIENCY November 2011 PRESENTER: Howard Weintrob FCA CTA Jeffreys Henry LLP Finsgate 5-7 Cranwood Street London EC1V 9EEJeffreys Henry LLP has been shortlisted in the ‘Best Service Provider to Startups’ category by The Europas (The European Tech Startup Awards). Content is for information only. No action should be taken without seeking professional advice Jeffreys Henry LLP 2011
  • 2. A. SOLE TRADER Personal Allowance currently £7,475 Basic rate to £35,000 @ 20% Higher rate thereafter @ 40% Class 4 NIC £7,225 - £42,475 @ 9%Thus, would not normally think about incurring costs andadministration of incorporation until a profit of, say, £50,000.Then potential saving between 40% tax rate and companytax rate of 20% if excess profit retained.However, protection of limited liability may be overridingfactor.
  • 3. B. PARTNERSHIPHere, effectively, the above figures are increased by thenumber of partners.National Insurance issues – Employing people costs 13.8%once the weekly salary is over £136, and over £139 a weekthe employee suffers 12%. There is no upper limit for theemployer but £42,475 p.a. is an upper limit for employees,then at 2%.Thus self-employment/partners can achieve significant NIsavings.
  • 4. C. COMPANYCorporation tax is 20% for small companies and notdue until 9 months after the year end. Thus clearcash flow advantage as PAYE due monthly.Quite popular to pay dividends to avoid NI but thecompany must generate a profit to pay a dividend!
  • 5. D. LIMITED LIABILITY PARTNERSHIPSCombines the benefits of being taxed personally butwith limited liability protection. Thus accountsprepared and each partner taxed on share of taxableprofit – very useful where perhaps key members ofstaff can be a partner for income tax purposes butperhaps no interest in equity of the company.Losses – NB: For a sole trader/partner losses in first 4years of trading can be carried back to the last 3 yearsincome and refund obtained.
  • 6. E. RESEARCH & DEVELOPMENTA useful uplift that can also be used as a credit against PAYE. Onlyavailable for companies. For the current year the qualifying R&Dcan be increased to 200% and for next year onwards 225%.However currently need to spend £10K but this limit is beingremoved from April 2012.We need to look at the definition. The R&D project must seek toachieve an advance in overall knowledge or capability in a field ofscience or technology through the resolution of scientific ortechnological uncertainty and not simply an advance in own state ofknowledge or technology.Best example is in relation to the internet.
  • 7. F. WHAT EXPENSES ARE ALLOWED FOR TAX?Anything incurred WHOLLY AND EXCLUSIVELYfor the business and is of a revenue nature.If its capital we need to look more closely tosee if it can qualify for capital allowances.
  • 8. G. ENTERPRISE INVESTMENT SCHEMETax efficient way of investing into company asinvestor obtains 30% tax relief but must befor less than 30% of share capital (cannotavoid using family!).