Services, such as lawyers or accountants. There can be tax advantages in setting up this kind of business with your spouse (or someone else you have a relationship with), but your accounts will be more complex – you will have to complete a tax return for each partner and a separate one for the partnership, for instance. Other points to note are:
◆ There is no limit to the level of involvement a partner can have in the business; they can work on it full-time or not at all
◆ Similarly, there is no restriction on them working elsewhere, so they could even have a full-time job of their own. (Although in this case their earnings might have an effect on how tax-efficient it is for them to be involved
◆ Although it is not a legal requirement, you might want to get a solicitor to draw up a partnership agreement if you think there could at some point be any dispute or disagreement over ownership, share of profits or other areas of the business
◆ Each partner has ‘joint and several liability’ for the finances of the business. This effectively means you can be responsible for any debts your partner might run up.
◆ Since 2001, however, legislation in the UK has allowed for the formation of limited liability partnerships (often abbreviated to LLPs). As their name indicates, these are partnerships where the partners do not have unlimited liability for each other’s actions, conferring a level of protection similar to that afforded to the directors of a limited company.
A limited company is where the business is a separate legal entity from the people who own it, manage it and work in it. Most businesses with medium or large turnovers fall into this category and there is a number of reasons why. For example, a limited company is taxed at a much lower rate (around ten per cent) than an individual and profits can be taken out tax-free in the
form of a dividend, increasing the amount of cash you can keep if you are a higher-rate taxpayer. Also, if the business runs into trouble, the liability for losses is limited to the company (hence the name ‘limited company’) and although directors do have a measure of personal responsibility for the affairs of the business, they are not exposed to the level of risk that they would be as sole traders or partners. However, there is a downside.
Establishing a limited company involves more administration. Accounts and annual returns have to be filed at Companies House every year within specified dates, for example, and it is essential to appoint a company secretary and follow established procedures in the running of the business. Here is the definitive list of business plan writers near me.
As a director, you will be an employee of the company and will be subject to benefit-in-kind rules which will mean you will incur additional tax and National Insurance for things like company cars.