Different Types of Business Structures

Your business might go through a variety of structures over its lifetime so it’s always helpful to know what different options there are and what implications they can have.

Types of business structure

The most common types you’ll probably know of are sole trader, partnership or company. But there is more than one type of partnership and company to consider.

Sole trader

A sole trader is a single business owner selling a product or service. However, they can still employ people and use subcontractors. This type of structure is the simplest and involves the least amount of administration work.

You must still keep accounting records and meet your legal obligations. Sole traders are personally liable for any debts of the business. Rather than paying corporation tax, sole traders pay tax on the profits of the business and this is reported through self assessment.

Partnerships

Similar to a sole trader but there must be at least two of you. It’s highly recommended that you have a written agreement between all of the partners.

Partners of a Limited Liability Partnership (LLP) have a reduced financial liability. This structure is popular with property businesses and professional services.

Limited company

Unlike sole traders or partnerships, limited companies are separate legal entities meaning you’re not personally liable for its debts.

You need to consider which type of company is right for you:

  • Company limited by guarantee
  • Company limited by shares
  • Community interest company
  • Public limited company

To give a brief overview, a company limited by guarantee is the smallest company structure and is usually chosen by not-for-profit organisations. Members are usually the directors and it can be easier to change personnel as one director leaving does not majorly change the shape of the company.

Shareholders of a company limited by shares are liable for the company’s debts up to the amount they each have invested. Unlike a PLC, this type of structure gives the owners more control over who has the shares and thus controls the company.

A community interest company is not set up for private profit so you’re unable to take funds out via shares or dividends. However, it can still pay salaries and reinvest its profits back into the business.

A public limited company has shares which are publicly traded and sold. The business needs to be reasonably successful to go down this route as a minimum of 50,000 in share capital is required.

Notifying authorities & paying taxes

Sole traders and partnerships report to HMRC using tax returns whereas companies must also report to Companies House.

Regardless of the size of the company, annual accounts, corporation tax returns and confirmation statements must all be filed. Corporation tax currently stands at 19% of taxable profits. If you’re an employee as well as a director, you’ll have the usual employment taxes to report as well.

If you sell your shares in the company, you may be liable for capital gains tax. However if conditions are met, you can qualify for entrepreneur’s relief thus reducing any capital gains tax liability.

VAT however is based on the annual taxable turnover rather than the legal structure of the business. So if you’re a sole trader, partnership or company and your turnover surpasses £85,000 the business is legally obligated to register for VAT.

Contact us

If you’d like some advice on business structure personalised to your requirements, call us on 01254 583515 or fill out the form below to arrange a free, no obligation initial appointment.

Electric Company Cars…worth it?

From 6th April company car owners will no longer have a benefit-in-kind on fully-electric vehicles, which is likely to make company cars far more appealing to motorists throughout 2020.

The benefit-in-kind on these cars at the moment is 16% of the list price, however this rate will drop from the 6th April 2020 to 0%. It will then only be 1% and 2% respectively for the two tax years following.

Tesla Model S

Take the Tesla S for example, a five door all-electric car, with an EPA range of 373 miles making it the second most-sold electric car in history.
The taxable benefit would come to £12,800 with the current benefit-in-kind rate of 16%. This would mean a higher rate tax payer (45%) would have to pay £5,760 in tax for that year. In addition to that, the company would have to pay Class 1A national insurance of £1,766.

However…

Under the new rate of 0%, the taxable benefit would be nothing, meaning a higher-rate tax payer would have no tax or national insurance to pay for the year.
With the rate of 1% in 2021/2022, there would only be £360 to pay in tax, and £720 the year after with the rate at 2%.

The company would also benefit from the new rates, as they will get full tax relief on the capital cost of the car, regardless of whether it was acquired through contract purchase or not. This means that at 19%, the ‘real’ cost to the company would be reduced to £64,800, down £15,200 on its current list price of £80,000.

When looking at the example above, shareholders who are looking to purchase an electric car would benefit in putting the putting the investment through the company. They would have to pay next to no tax in respect of benefit-in-kind and the company itself can enjoy full tax relief on the cost of the car. Tax efficient opportunities may also arise for personally held cars to be transferred to a company.

It is believed the new tax rules could see a swing back to company cars, although there will always be the threat of advances in technology making today’s model obsolete.

Contact us

If you’d like some advice on company cars and the impact they could have on your business, call us on 01254 583515 or fill out the form below.

Free HMRC App

HMRC launches an app to assist with personal taxation

The newly issued HMRC app enables individuals to find information about their tax, National Insurance, tax credits and benefits on the move. Suitable for both Apple and Android devices, users will need their Government Gateway credentials to access the information.

For accountants like us who act as tax agents for individuals and for whom we will never have full access to the client’s personal tax account this provides easy way to enable clients to show us, ‘on the move’, otherwise unavailable information without having to access it via a computer/internet.

Full details can be found at: https://www.gov.uk/government/publications/the-official-hmrc-app/the-free-hmrc-app

You can use the HMRC app to estimate your tax, manage your tax credits, access your Help to Save account, or work out your take-home pay.

Used by more than 550,000 people per month, the app puts you at the heart of your tax matters and financial life.

What the HMRC app enables you to do

You can use it to:

    • view your tax code and an estimate of the tax you need to pay
    • see your income and benefits
    • check your National Insurance number
    • view your tax credits payments schedule
  • renew your tax credits
  • access your Help to Save account
  • use our tax calculator to work out your take home pay after Income Tax and National Insurance deductions
  • track forms and letters you’ve sent to us
  • get 6-digit access codes to make your HMRC accounts more secure

 

Getting started

Download the free HMRC app now from:

 

How to sign in

The first time you sign in, you’ll need to enter your Government Gateway ID and password. If you haven’t got these, go to the Government Gateway website and register as an individual.

Whenever you use the app again, depending on what your handset supports, you can sign in using:

  • a 6-digit PIN
  • fingerprint authentication
  • facial recognition

 

Setting up a personal tax account

You can use the app to set up a personal tax account by giving us your name, National Insurance number and date of birth.

If we need to verify your identity, we’ll ask for details such as your passport number and information about your salary.

Sign in to your Help to Save account

The Help to Save service went into a trial phase known as ‘private beta’ in January 2018. It is being rolled out gradually so that it can be tested and developed.

If you’ve already opened a Help to Save account as part of the trial, you can use the app to:

  • check your Help to Save account balance and bonus
  • keep track of how much money you’ve paid in each month
  • see how much money you can still pay in before the end of each calendar month
  • set regular reminders to add to your savings
  • view all your payments and withdrawals

If you want to do other tasks, such as pay money in, it is easy to sign in to your Help to Save account using the app.

Safety and security

HMRC takes cyber security very seriously – see how we are keeping you safe online.

Help and support

If you have a problem with your account that you can’t solve using HMRC’s online resources, contact us for help.

What is marriage allowance and can we claim it?

We all know that tying the knot can affect your day-to-day money management, but exactly what effect does marriage or a civil partnership have on your financial status? Here we’re looking at marriage allowance.

There was a time that making the leap from single life to married bliss came with a great range of tax incentives. Married couples used to be viewed by the Government as one single taxable entity and so you would be taxed less after getting married.

The picture is different today: even when joined to another in matrimony, we are now mostly taxed individually, meaning the tax benefits are few and far between.

How will your tax status be affected?

You should inform HM Revenue & Customs of your new marital status to make sure you are taxed correctly. You can do this by following the GOV.UK link here.

Marriage Allowance

Marriage allowance allows you to transfer £1,190 of your personal allowance to your husband, wife or civil partner if they earn more than you do saving tax of up to £238 in the year.

It is estimated that one in four couples who are eligible for marriage allowance fail to claim it.

The lower earner must have income of £11,850 or less to be able to make the claim.

Claims can be backdated for any tax year since 5th April 2015 providing you were eligible in those tax years.

Your application can be completed online and once an application is complete it is processed immediately. The new form is expected to take you only ten minutes to complete.