|
|
Anxious About Your Public Relations?
Shooting from the hip always creates anxiety.
Especially when managers order a communications tactic here, another there, but fail to base them on a realistic public relations goal and strategy. One that could increase the chances they’ll...
Is the U.S. dollar about to reverse course?
For the first time in several years the U.S. dollar has managed to gain value against the world’s other major currencies. During the first three months of 2005, the U.S. dollar is up approximately five percent against both the yen and the euro....
Learn The Five Key Debt Reduction Steps You Must Take Immediately!
Step 1. The purpose of this first step is to bring you back to reality. You must know exactly how much money you owe and to whom you owe it. * Collect all of you unpaid bills and any other evidence of your outstanding debts. * List each...
The Only 5 Things You Can Sell
So, you want to start an internet store do you? What is it you are going to sell? This really is the first thing to tackle, because without any products your store will fail, guaranteed. All jokes aside, let me share some insight on this broad...
Use Feng Shui Coins To Increase Your Income
Feng shui coins can allow you, among other things, to increase your income. By keeping three coins tied with a read thread, you would protect your already existing income as well as increase it. According to Chinese traditions, three coins tied...
|
|
|
|
|
|
|
|
WHY INCORPORATING CAN MEAN AMAZING TAX SAVINGS
According to a new survey carried out by Alliance & Leicester, one in five small business owners view tax as their greatest concern. The Chancellor has announced in his last budget that companies with profits below 10,000 will not have to pay any corporation tax with effect from 1 April 2002. The question to be asked is: does that announcement make incorporation a more attractive option compared to being a sole trader?
The answer is that from a tax point of view, it is advantageous to trade through a limited company as long as the income is drawn from the company by the owners as dividends from their shares and the amount of dividends drawn is restricted below the 40% band rate (i.e. 31,063 for tax year 2002/03). That way, the owners have no further personal tax ("income tax") to pay. Moreover, dividends are not subject to national insurance contributions. This is excellent news of course. But, if dividend income falls within the higher rate bracket of income tax (i.e. above 34,515), they will be taxed at 22.5% on the excess, which of course will increase the tax burden. The company profits are subject to corporation tax rates. Those are lower than income tax rates.
The most catastrophic scenario is when the director takes his reward from the company as salary. Then his/her salary is taxed at income tax rates (like a sole trader's income). That is because, unlike sole traders, the tax system treats companies as separate from their owners because a company is a separate legal entity. The problem is that the income taxes are higher than corporation tax rates. On top of that, they will be subject to employee and employer national insurance contributions, which of course increase the tax burden and render his position worse than even an unincorporated business ("sole trader"), because NIC Class 1 on payroll are higher than NIC Class 2 paid by self employed.
In contrast, a self employed person ("sole trader") is taxed at income tax rates on the profits from his business, which are added to his other sources of income. As it has already been mentioned, income tax rates are overall higher than corporation tax rates. On top of income tax, national insurance contributions class 4 are payable on the business profits within a specified band (7% on profits between 4,615and 30,420). National insurance contributions Class 2 are also paid by self-employed people, although those are lower than those payable by company directors on their salaries.
To illustrate the above, let's take a simple example. We have a limited company and a sole trader. They both make 60,000 profits each in the tax year 2002/03. We assume that the company director takes a salary equal to the amount of his personal allowances (untaxed income) of 4,615 and the balance as dividends. The company will pay corporation tax at 19% equal to 10,523 and nothing else. The sole trader will pay income tax 16,542, National insurance Class 2 104 and National insurance Class 4 1,806. Total 18,452. The bottom line is that the person that has incorporated his business into a limited company will make a tax saving of 7,929 compared to a sole trader! Isn't that fantastic?
Somebody might be wondering: why is this entire happening? The official explanation is that, this government, to help the economy grow, encourages people to leave as much profits within their businesses to be reinvested, instead of being taken out and spent.
The "unofficial line" is that, as a matter of fact, for years the Inland Revenue has tried to reclassify the self-employed. The 1% in NIC hike on staff salaries above the NIC threshold from next April adds to both the employees' and employers' tax burden and may more than offset the saving from the corporation tax zero rate on the first 10,000 of profits.
Aren't there any other matters to consider in deciding whether to incorporate or not?
Higher administration costs to comply with company law, payroll and bookkeeping is one factor. Another issue
is pension planning. Extracting profits out of the company as dividends rather than salary means that there will be no "net relevant earnings" and therefore pension contributions can't be made. But the advent of stakeholder pension plans has meant that contributions up to 3,600 per year can be made without the need for any earnings. If a person does not wish to transfer funds in existing plans into stakeholder because of high charges, there is a way out: the best net relevant earnings (i.e. salary) in five consecutive years can be used for making contributions for the next five years, even if there were no salaries in the remainder four years. It is comforting to know that entitlement to basic state pension is not affected by taking a salary from the company at the level of a person's personal allowances i.e. 4,615.
Furthermore, an individual may decide not to bother with pension plans and instead invest in ISA. Often, these can be more efficient than pensions but that's beside the scope of this article. If that option is taken, no salary is necessary.
Another factor is business motoring. It might be tax advantageous for an unincorporated business that owns many cars not to incorporate because if these cars have some private use there will be benefits in kind taxed on the users. These are generally higher than the straight apportionment between private and business for all car running costs in the case of sole traders.
The conclusion is that there can be considerable tax savings waiting the sole trader who decides to go down the road to incorporation. But, one needs to proceed with caution and careful planning. And don't forget the biggest advantage of incorporation, which is Protection from Personal Liability. Incorporating is one of the best ways to protect a business owner from personal liability. Shareholders of a company are generally not liable for the obligations of the company. Creditors of a company may seek payment from its assets, but not the assets of the shareholders. This means that business owners may engage in business without risking their homes or other personal property.
Thank you for taking the time to read this Article. I hope you've found it useful. If you have, please drop me an email and let me know what you think.
You can email me at... constantinesavva@accamail.com
Alternatively, you can visit our website at http://www.tax-accounting-london.info and read a series of other full length articles that present the complete picture on a variety of interesting topics.
If you would like to know how to save tax and make sure that more of your hard earned cash stays with you to expand your business and increase your profits, we have a Free Special Report addressed to small businesses either starting up or already in business. This Exclusive Free Special Report is available automatically when you subscribe to our regular series of Free Newsletters on finance advice and tax planning by visiting our subscription area on our website www.tax-accounting- london.info. It is complied from real life situations dealing with small business tax affairs for over 10 years and it is loaded with down-to-earth advice and practical, understandable examples.
LEGAL NOTICE Whilst every care has been taken in the preparation of this article, the author cannot accept responsibility for any errors or omissions. Proper professional advice should be taken at all times.
We retain copyright for the contents of this article. Any unauthorized copying or onward distributions are prohibited without our consent.
About the Author
Demetris Savva is a qualified Chartered Cerified Accountant and a director of Constantine Savva Accountants Ltd, a London practice dealing with small businesses. It offers, a unique Monthly Financial Consulting Service. This gives timely, accurate and understandable information to businessmen to help them make easier and faster decisions and be in control of finances. The practice has minimising the clients' tax bills through tax planning and proactive advice as a priority.
|
|
|
|
|
Finance - Leases-Leasing Ezine Articles |
EzineArticles.com allows ezine or email list publishers to upload or download free expert content that can be used within email newsletters or websites. |
ezinearticles.com |
  |
Finance: Leases Leasing Articles from EzineArticles.com |
http://ezinearticles.com/?cat=Finance:Leases-Leasing Free Content For Your Ezine or Website http://creativecommons.org/licenses/by-nc-nd/2.0/ Why use your ... |
ezinearticles.com |
  |
Leases Leasing - Money & Finance Articles |
Leases Leasing - Money & Finance Articles. Money & Finance | Accounting & Payroll | Bankruptcy | Business & Loans | Credit Tips | Currency-Trading ... |
www.article99.com |
  |
Finance » Leases Leasing » Absolute Article Directory |
Absolute Article Directory: Finance, Leases Leasing. |
www.absolutearticle.com |
  |
- Leases-Leasing |
By David Springer | On January 29, 2006 | In Leases-Leasing | Rated. Short on cash, but need equipment? Consider leasing what you need. ... |
www.articlebar.com |
  |
Leases Leasing |
You are here: Article Directory arrow Article Directory arrow Finance arrow Leases Leasing ... Leases Leasing. Articles ... |
www.rumorist.com |
  |
Long Term Car Rental Italy Auto Rentals Leases Leasing Rome Milan ... |
Long Term Car Rental Italy Auto Rentals Leases Leasing Rome Milan Florence One Way Paris London Frankfurt Madrid Lisbon. |
www.ideamerge.com |
  |
europe car rental leases leasing one way rentals long term renault ... |
pictured is the Renault Laguna Estate, With Renault tax-free, short-term auto leasing you get the exact, brand-new vehicle you reserve, plus unlimited miles ... |
www.ideamerge.com |
  |
Private Fleet - Finance, Insurance, novated leases, leasing, CHP ... |
New Car Broker Australia. Private Fleet sales discounts on your new car purchase, no haggle, no hassle saving $1000s off all new and used cars for private ... |
www.privatefleet.com.au |
  |
Projector Leases, Leasing Companies for LCD, DLP, LCOS projectors |
Projector leasing programs and services. Choose a company. |
www.projectorcentral.com |
  |
Category: leases-leasing |
Category... leases-leasing. Results 1 - 3 of 3. Search took 0.01 seconds. Page 1 of 1. Buy or Lease: Which Automobile Transaction is Better? ... |
www.articler.com |
  |
John Dellagnese & Associates: offices, officespace, lease, leases ... |
It takes two companies to bring you the premier Corporate Property Development group in Northeast Ohio: the talents of John Dellagnese and Associates ... |
www.dellagnese.com |
  |
John Dellagnese & Associates: offices, officespace, lease, leases ... |
Welcome to our Tenant Login Page. * Forgot your password or haven't received one yet? Email us tinah@dellagnese.com or call 330-668-4000 and we will reply ... |
www.dellagnese.com |
  |
The-Arts-Magazine.com - Leases-Leasing |
Home arrow Article Links arrow Finance arrow Leases-Leasing. Main Menu ... Mosets Tree. Leases-Leasing. Listings. There are 0 listings in this category. |
www.the-arts-magazine.com |
  |
OmegaMotors.com - Your Money - Leases - Leasing Overview |
Blue Book retail & trade-in value reports on used vehicles. Kelley features prices on used cars, trucks, street and dirt bikes, ATVs, scooters, ... |
www.omegamotors.com |
  |
Entertainment Guide - Leases-Leasing |
Sunday, 03 December 2006, Home arrow Article Resources arrow Finance arrow Leases-Leasing ... Mosets Tree. Leases-Leasing ... |
www.entertainment-resource-directory.com |
  |
- Leases-Leasing |
Mosets Tree. Leases-Leasing. Listings. There are 0 listings in this category. spacer.png, 0 kB. spacer.png, 0 kB. download joomla modules download joomla ... |
www.healthcare-resource-guide.com |
  |
FINANCEDEPARTMENT.COM- Finance, Mortgages, Leases, Leasing ... |
Finance, Mortgages, Leases, Leasing, Brokerage Houses, Mortgage Lending. |
www.financedepartment.com |
  |
vehicle leases leasing guide and facts |
vehicle leases leasing guide and facts. Under the federal Consumer Leasing Act, you, the consumer, have a right to information about the costs and terms of ... |
www.shopperfavorites.com |
  |
- Leases-Leasing |
spacer.png, 0 kB. spacer.png, 0 kB. Home arrow Article Resources arrow Finance arrow Leases-Leasing. Mosets Tree. Leases-Leasing ... |
www.cars-directory-guide.com |
  |
|