Shorten Your Journey to Business and Personal Success

Written by Judy Cullins

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 109467 company byrepparttar 109468 owners as dividends from their shares andrepparttar 109469 amount of dividends drawn is restricted belowrepparttar 109470 40% band rate (i.e. œ31,063 for tax year 2002/03). That way,repparttar 109471 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 109472 higher rate bracket of income tax (i.e. above œ34,515), they will be taxed at 22.5% onrepparttar 109473 excess, which of course will increaserepparttar 109474 tax burden. The company profits are subject to corporation tax rates. Those are lower than income tax rates.

The most catastrophic scenario is whenrepparttar 109475 director takes his reward fromrepparttar 109476 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 109477 tax system treats companies as separate from their owners because a company is a separate legal entity. The problem is thatrepparttar 109478 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 109479 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 109480 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 109481 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 109482 above, let's take a simple example. We have a limited company and a sole trader. They both make œ60,000 profits each inrepparttar 109483 tax year 2002/03. We assume thatrepparttar 109484 company director takes a salary equal torepparttar 109485 amount of his personal allowances (untaxed income) of œ4,615 andrepparttar 109486 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 109487 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 109488 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 109489 Inland Revenue has tried to reclassifyrepparttar 109490 self-employed. The 1% in NIC hike on staff salaries aboverepparttar 109491 NIC threshold from next April adds to bothrepparttar 109492 employees' and employers' tax burden and may more than offsetrepparttar 109493 saving fromrepparttar 109494 corporation tax zero rate onrepparttar 109495 first œ10,000 of profits.


Written by Stupidman

Stupidman Downloads,Copies a File

Some superheroes drink a potion,take a pill,utter some magic words. I put my fingers on a keyboard and become STUPIDMAN.

I am currently readingrepparttar free chapters ofrepparttar 109466 new e-book "Internet Profit Pearls" (IPP). I understandrepparttar 109467 explanations of why some popular strategies don't work andrepparttar 109468 advantages of some lesser used,yet cost effective methods. My problem is implementingrepparttar 109469 tactics. But apparently I'm not alone.

One tactic is creating a "junk" email address. I went to a free email service and thought Stupidman needs an email address. Guess what? Stupidman was taken, in factrepparttar 109470 first three versions were taken. I finally secured a version but even creating an email address does not come easy for me.

Downloadingrepparttar 109471 book was easy(at least it was with Winzip) but then IPP says I have to make a copy. Never having made a copy my blood pressure begins to rise, but there is a link to a tutorial site and a brief description ofrepparttar 109472 steps for copying. Wanting to delayrepparttar 109473 inevitable and avoid becoming gaseous dog(see previous articles) I clickrepparttar 109474 tutorial.

Remembering we have Windows 98, I select it, then "getting started" and......getrepparttar 109475 old "the page cannot be displayed notice". (Sometimes I think this is a cookie that attaches to me rather than a computer.) After two more attempts I give up and return to IPP.

For those of you who know what you are doing, this next passage is really boring and is intended for soul mates of Stupidman.

Usually my son,Greased Lightning, ignores everything I say but one time he responded to my mutterings aboutrepparttar 109476 wasted printer ribbon and paper when I would print a 22 page article and only wanted 3 paragraphs. He responded, contemptuously of course, by showing me how to select a portion ofrepparttar 109477 article. Clickrepparttar 109478 cursor (also known asrepparttar 109479 curser when your hand twitches) atrepparttar 109480 top left corner of what you want to copy, left click and hold,then drag to bottom right corner of what you want to copy. This highlighted area can be printed. Now holdrepparttar 109481 Ctrl key down and press P. A gray page will pop up, click selection (it's inrepparttar 109482 middle onrepparttar 109483 left side) then ok. If you have paper inrepparttar 109484 printer(a future article?) you'll get a copy of exactly what you want. (Warning: More than likelyrepparttar 109485 gray page defaults to all. If you get too cocky with this new technique you will forget to click selection and end up with 22 pages of stuff).

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