WHY INCORPORATING CAN MEAN AMAZING TAX SAVINGS

Written by Demetris Savva BA FCCA


According to a new survey carried out by Alliance & 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 106107 company byrepparttar 106108 owners as dividends from their shares andrepparttar 106109 amount of dividends drawn is restricted belowrepparttar 106110 40% band rate (i.e. œ31,063 for tax year 2002/03). That way,repparttar 106111 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 106112 higher rate bracket of income tax (i.e. above œ34,515), they will be taxed at 22.5% onrepparttar 106113 excess, which of course will increaserepparttar 106114 tax burden. The company profits are subject to corporation tax rates. Those are lower than income tax rates.

The most catastrophic scenario is whenrepparttar 106115 director takes his reward fromrepparttar 106116 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 106117 tax system treats companies as separate from their owners because a company is a separate legal entity. The problem is thatrepparttar 106118 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 106119 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 106120 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 106121 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 106122 above, let's take a simple example. We have a limited company and a sole trader. They both make œ60,000 profits each inrepparttar 106123 tax year 2002/03. We assume thatrepparttar 106124 company director takes a salary equal torepparttar 106125 amount of his personal allowances (untaxed income) of œ4,615 andrepparttar 106126 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 106127 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 106128 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 106129 Inland Revenue has tried to reclassifyrepparttar 106130 self-employed. The 1% in NIC hike on staff salaries aboverepparttar 106131 NIC threshold from next April adds to bothrepparttar 106132 employees' and employers' tax burden and may more than offsetrepparttar 106133 saving fromrepparttar 106134 corporation tax zero rate onrepparttar 106135 first œ10,000 of profits.

48 Great Tips for Bringing a New Product to Market from Your Home

Written by Gary R. Bronga


48 Great Tips for Bringing a New Product to Market from Your Home by Gary R. Bronga

Many people have many great ideas. They just don’t act on them. You can do it differently. This booklet is based onrepparttar author's first-hand, been-there-done-that experiences.

Gary Bronga worked inrepparttar 106106 aerospace industry at Cape Canaveral Florida for 21 years. Wearing identification badges has always been a part of his working wardrobe. A large aerospace company handed out a lapel pin for a promotion inrepparttar 106107 spring of 1995. Just by chance Gary pinned his badge torepparttar 106108 lapel pin. An idea for a better way to wear his company identification badge came to him. For several days he made many drawings and came up withrepparttar 106109 idea to place a "bar" atrepparttar 106110 bottom of a lapel pin to accommodaterepparttar 106111 common bulldog metal clip on identification badges.

This enabled him to make badge holders of custom logos for companies or associations, or create many fun designs to make wearing badges more enjoyable. This wasrepparttar 106112 start of Gary's journey. The tips in this booklet will streamline your own process of taking a product from an idea to reality, putting money in your pocket. Gary originally had enough rejection letters to wallpaper his home office wall. Most ofrepparttar 106113 people and companies that rejected him then call him now.

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