Likewise we don't quite know what to do if someone refuses a tithe from us, or tithes back to us. This issue, rather than share another success story from a subscriber (keep 'em coming, though -- I enjoy reading about them and will share more in our next issue!), I'm going to share with you a few tips on etiquette of tithing, that I've found helpful.

1: Be open and receptive to gifts of time, talent and treasures that are offered to you. Tithes, donations, charity, whatever you call blessings of your income, your time or your unique abilities, are acts of good. Charity, being benevolent, means doing good or causing good to be done. Our history is filled with "benefactors" who created trust funds or otherwise supported artists, musicians, composers, writers, teachers, ministers, rabbis, etc. These acts of charity brought attention to and provided support for creative work they were doing. Today, much of this benevolent work is done through tax-deductible charities, but much is also still done through individuals with no thought to tax benefit. You participate in this wondrous flow every time you tip a street performer, or throw a house concert, or tithe to other creative individuals.

2: Don't let others take your prosperity away by refusing your tithe (and don't refuse tithes that are offered you). I'm often moved by incredible music. Several weeks ago I tithed directly to soloist and pianist (I'm blessed to get to listen to incomparable Jazz pianist Stefan Scaggiari) at my home church. They both attempted to turn down tithe and I simply said, "please don't stand in way of my prosperity. You fed my soul and I feel compelled to give you this gift. Please accept it graciously in spirit in which it is being given." Simple words that carry a profound message.

The answer is that from a tax point of view, it is advantageous to trade through a limited company as long as income is drawn from company by owners as dividends from their shares and amount of dividends drawn is restricted below 40% band rate (i.e. œ31,063 for tax year 2002/03). That way, 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 higher rate bracket of income tax (i.e. above œ34,515), they will be taxed at 22.5% on excess, which of course will increase tax burden. The company profits are subject to corporation tax rates. Those are lower than income tax rates.

The most catastrophic scenario is when director takes his reward from 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, tax system treats companies as separate from their owners because a company is a separate legal entity. The problem is that 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 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 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 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 illustrate above, let's take a simple example. We have a limited company and a sole trader. They both make œ60,000 profits each in tax year 2002/03. We assume that company director takes a salary equal to amount of his personal allowances (untaxed income) of œ4,615 and 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 that 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 help economy grow, encourages people to leave as much profits within their businesses to be reinvested, instead of being taken out and spent.