Franchise Advice
It is a tax-efficient way to structure the business if profits are over £25,000 as all income is taxed at 20 per cent (on the basis that the company is small). Money is then extracted by way of a small salary to the director/shareholders along with dividends. Accounts again need to be prepared each year and submitted to both Companies House and HM Revenue & Customs.
“A Limited Liability Partnership can give a more legal structure to the business than a partnership and is worth considering if the partnership route is most beneficial for the business”
Limited Companies give the same
legal protection as a Limited Liability Partnership but with different tax rules. There is more flexibility with regards to extracting monies from the company. The profits are taxed at 20 per cent and you can then decide how much comes out to you personally, and whether this level covers your basic rate band so that no further personal tax is payable.
Partnership This is where you are in business with another person. Again, you will need to prepare accounts each year to be included on the partnership tax return, which will then flow through to your personal tax return. Tax is payable each January and July based on the profits that you receive and follows the same rules as a sole trader. Partners in a partnership have joint liability for any business debt. There is no protection if any legal action is taken against you and therefore your family home and other assets could be at risk. Partnerships can be useful for spouses to enable personal allowances and basic rate bands to be fully utilised between them to generate a higher family take-home income. It is important that a partnership
agreement is drawn up to cover how the partnership will operate and also what will happen if the partners cannot agree on the way to move forward. It can also detail aspects such as profit-sharing ratios and agreements to holidays, as well as what should happen if a partner leaves.
Limited Liability Partnership The tax treatment is the same as for a partnership but there is also limited liability protection, which means that your personal assets are protected from business liabilities unless personal guarantees are given. Accounts need to be prepared annually but also need to be filed with Companies House and typically the accounting costs will be higher than that of a partnership.
Again, it is important that a partnership
agreement is drawn up, as it would be for a partnership. In order to add or remove partners from the Limited Liability Partnership, forms need to be submitted to Companies House to reflect the changes. A Limited Liability Partnership can give a more legal structure to the business than a partnership and is worth considering if the partnership route is most beneficial for the business.
Limited Company
This is a separate legal entity that will have directors and shareholders.
Summary You will need to ensure that there are no reasons to give benefit to structuring in one way in favour of another. For example, there are various vat exemptions that require a business to be structured either as a sole trader or partnership that would then mean that a limited company would not be advantageous to you. Another aspect to consider is if the business will make a loss in the first year. If this is likely, and you have been employed previously, you can then carry back losses – providing you are a sole trader or in partnership to receive a tax rebate to assist with your cashflow.
When looking at this you should discuss the choices with a firm of franchise specialist accountants, in order to find the best option for you. n
CARL READER
Carl Reader is a partner at Dennis & Turnbull Chartered Accountants and Strategic Advisors. For more information contact:
carl.reader@
dennisandturnbull.com or call 01793 741 600
October 2013 |
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