This document provides a summary of tax considerations for unincorporated businesses. It covers: - Sole traders and partners pay income tax on profits at rates from 20-50% plus class 4 national insurance contributions from 9-2%. - Employing family members can be tax efficient if salaries are commercially justified. Other options include partnering with family. - Expenses incurred before the end of the accounting year allow earlier tax relief claims. Certain capital expenditures qualify for 100% tax allowances. - Working from home allows claims for a portion of home utility, mortgage, and other costs depending on usage and space. Records must justify any claims. - Providing childcare vouchers or company cars can reward staff tax-

1. ACTIVE PRACTICE UPDATES SEPTEMBER 2012
Tax and your business
Don’t miss out on tax saving opportunities. Planning for the year
ahead will beneit your business – this guide covers some important
considerations for unincorporated businesses.
Sole traders and Business UPDATE
partners
Tax is payable by an unincorporated
business at income tax rates from 20 to the family wealth and income at risk if, before the end of the accounting year
50 per cent. In addition there is a liability for example, the business were to fail. means you can claim any available tax
to class 4 national insurance contributions HM Revenue & Customs may challenge relief a year earlier. For 2012/13 and
which is charged or levied at a rate of 9 excessive remuneration packages or proit subsequent years, the irst £25,000 of
per cent on taxable proits from £7,605 to shares for family members, so seek our most capital expenditure qualiies for a
£42,475 and thereafter at a rate of 2 per advice before you make any decisions. 100 per cent allowance. You may also
cent without limit. want to consider investing in energy
If you operate your business through a eficient or environmentally beneicial plant
limited company, under current tax law
The family business you can pass shares on to other family
and equipment which attracts 100 per cent
allowances, irrespective of cost.
You can employ family members in your members and thus gradually transfer the
business, provided the salary and other business with no immediate tax liability
in most cases. However, a tax saving for
Working from home
beneits you pay them are commercially
justiiable. You can remunerate family the donor usually impacts on the recipient The number of people working from
members with a salary, and perhaps also and you need to steer clear of the anti- home has soared. According to a
with beneits - such as a company car. avoidance rules known as the settlements report by Enterprise Nation, almost half
Other options include medical insurance or legislation, so again, seek our advice irst. of this country’s SMEs are based at a
making payments into a registered pension residential address, and 60 per cent
scheme. Expenses of new businesses start out of a home
ofice. Frustratingly, the complex tax
You can also take family members into HMRC has extensive and ever-changing rules governing this situation mean few
partnership, thereby gaining more lexibility regulations on what expenses can and are receiving the full beneit. Yet if you
in proit allocation. In fact, taking your cannot be claimed against tax. Naturally, arrange your business affairs in a clear
children into partnership and gradually you will want to make sure your business is and demonstrable way, you could claim a
reducing your own involvement can be a claiming all available expenses. number of expenses - depending on usage,
very tax eficient way of passing on the area and working time, you can claim an
Professional guidance can ensure your
family business. Be aware, though, that apportionment of both ixed and running
business is making the right claims, and
taking family into your business may put costs.
at the right time: incurring expenditure just
18 Hyde Gardens www.plummer-parsons.co.uk
Eastbourne BN21 4PT
01323 431 200 eastbourne@plummer-parsons.co.uk

2. Tax and your business
Utility bills, mortgage interest (or rent), whether announced or not, and they can mind that banks and other creditors often
water rates and general repairs may all also demand the production of documents require personal guarantees from directors
be eligible, as are telephone line rental by any person involved in the supply of for company borrowings, so the owners or
and cleaning. HMRC oficers are now goods and services. directors of the business may in fact bear
instructed to accept a claim on any the liabilities of the business out of their
Although businesses subject to compliance personal assets.
‘reasonable basis.’ Naturally, any such
checks are selected on the basis of risk, it
claim should be diligently prepared. If you
is essential that your records are adequate Trading through a limited company can
are working from home and qualify, please
if you are going to satisfy a tax inspection; be an effective way of sheltering proits
talk to us. You will also need to consider
if you take reasonable care to comply as the rates of corporation tax on proits
whether your business use of home
with the law you will not be penalised. are generally lower than those applying to
breaches planning restrictions, and whether
If you are unsure if your business records unincorporated businesses.
business rates may be due on the property.
will stand up to scrutiny, or would like
more advice on what ‘Take care to avoid Although proits paid out in the form
Rewards and beneits a penalty’ means for you, do seek our of salaries, bonuses, or dividends will
advice. Employers should be aware that normally be taxable at top rates (with
There are ways of rewarding staff that can
there is now a penalty for failure to pay quite punitive amount of national insurance
be tax eficient for both your business and
PAYE tax by the deadline each month. contributions in addition), proits retained
your employees. For example, providing
in the company will be taxed at 20 per
childcare vouchers of up to £55 per week
to staff as part of their salary package is Limiting personal cent. The tax rate increases signiicantly
when taxable proits exceed £300,000.
tax-free and attracts no national insurance liability Retained proits can be used to buy
contributions, saving both your business
equipment or to provide for pensions - both
and your employees money. This relief If the limitation of liability is an important
of which are eligible for tax relief.
is restricted to £28 a week for new consideration, then a limited company
participants paying 40 per cent tax, and may be the right solution - but do bear in
to £22 for new participants paying 50 per
cent tax.
Do also consider whether some staff might Areas where we can help:
be provided with a company car. Low
• Managing debt and cash low
emission models can attract 100 per cent
allowances when the business purchases • Planning your business start-up
them brand new, and can produce a very • Your options for inance
low taxable beneit in kind for the staff • Finding investors
concerned. Do ask us for more details
• Putting you in touch with patent and intellectual property law specialists
of how to implement these ideas, or for
• Helping you to comply with government regulations and avoid ines,
alternative suggestions.
surcharges, penalties and interest
Tax penalties • Timing capital and revenue expenditure to maximum tax advantage
• Improving your invoicing and debt recovery systems
Penalties for inaccuracies in tax returns,
• Involving family members in the business
late iling of returns, late payment of tax
and failing to register for certain taxes • Protecting your business from inancial disaster
are all being modernised. Individuals and • Selling your business and grooming your business for sale,
business owners now face up to 100 per • Valuing your business
cent penalty for deliberately underpaying
• Minimising employer and employee NIC costs
tax and taking steps to conceal this, and
• Minimising tax costs, enabling you to keep more of the proit you earn
even higher penalties if the matter relates to
non UK income or assets. Even an honest • Preparing yourself and your business for your exit, succession or retirement
mistake may be regarded as ‘careless’ and
attract a penalty of up to 30 per cent of
the tax.
As your business and taxation advisers we aim to keep
you up-to-date, but personal advice should always
HMRC also has wide ranging legal be sought before taking any action – we would be
powers, including rights of entry to all delighted to advise you on any taxation matter.
business premises (including home ofices),