Share Little Random Acts of Kindness

Written by Josh Hinds

According to a new survey carried out by Alliance & where ID_NUM=9270; 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 œ10,000 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 asrepparttar income is drawn fromrepparttar 124000 company byrepparttar 124001 owners as dividends from their shares andrepparttar 124002 amount of dividends drawn is restricted belowrepparttar 124003 40% band rate (i.e. œ31,063 for tax year 2002/03). That way,repparttar 124004 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 withinrepparttar 124005 higher rate bracket of income tax (i.e. above œ34,515), they will be taxed at 22.5% onrepparttar 124006 excess, which of course will increaserepparttar 124007 tax burden. The company profits are subject to corporation tax rates. Those are lower than income tax rates.

The most catastrophic scenario is whenrepparttar 124008 director takes his reward fromrepparttar 124009 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,repparttar 124010 tax system treats companies as separate from their owners because a company is a separate legal entity. The problem is thatrepparttar 124011 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 increaserepparttar 124012 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 onrepparttar 124013 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 onrepparttar 124014 business profits within a specified band (7% on profits between œ4,615and œ30,420). 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 illustraterepparttar 124015 above, let’s take a simple example. We have a limited company and a sole trader. They both make œ60,000 profits each inrepparttar 124016 tax year 2002/03. We assume thatrepparttar 124017 company director takes a salary equal torepparttar 124018 amount of his personal allowances (untaxed income) of œ4,615 andrepparttar 124019 balance as dividends. The company will pay corporation tax at 19% equal to œ10,523 and nothing else. The sole trader will pay income tax œ16,542, National insurance Class 2 œ104 and National insurance Class 4 œ1,806. Total œ18,452. The bottom line is thatrepparttar 124020 person that has incorporated his business into a limited company will make a tax saving of œ7,929 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 helprepparttar 124021 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 yearsrepparttar 124022 Inland Revenue has tried to reclassifyrepparttar 124023 self-employed. The 1% in NIC hike on staff salaries aboverepparttar 124024 NIC threshold from next April adds to bothrepparttar 124025 employees’ and employers’ tax burden and may more than offsetrepparttar 124026 saving fromrepparttar 124027 corporation tax zero rate onrepparttar 124028 first œ10,000 of profits.

Make It Fun and Get It Done

Written by Jean R. Charles

I learned a valuable less from my 13-year-old son last week. We were hiking inrepparttar woods on our very hilly, rocky farm. He stopped near a cliff and starting hurling some rather large rocks overrepparttar 123999 edge, seeing how successfully he could get them to smash on a large boulder atrepparttar 124000 bottom. I got tired of watching him do this after about 20 minutes and suggested that we move on. He protested and kept on his constant picking up, carrying and hurling rocks.

Finally after some time I said "Do you realize you have been picking up rocks for more than half an hour? This isrepparttar 124001 very same task Dad asks you to do every weekend to help clearrepparttar 124002 fields. You always moan and groan , do it for about 2 minutes, then find an excuse to quit." His reply was, "But this is fun!"

This hit me like a rock. How many tasks we dread can

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