Sheena Sullivan, a tax partner at PKF, says business owners should consider carefully whether they should operate as a limited company or remain unincorporated.
According to Sullivan, this is a difficult choice, as owners will need to consider the exact needs of their business. Owners should take into consideration that while outside investors tend to prefer limited liability status, lending institutions are likely to request personal guarantees regardless of the legal status of the company, for any company loans.
Business owners are unlikely to protect their own liability by forming a limited company, but on the other hand it could be a means attract venture capital and grow the business.
Sullivan advises small business to keep the number of associated companies to a minimum, as this will impact on the amount of corporate tax they will pay. Currently, tax rates vary according to the profit recorded, but if the SME operates other companies during the year, they could find their profit limits divided by two, and hence pay more tax on relatively small profits.
Other issues small business owners should think about are their company car policies – as the government prepares to implement an environment-friendly tax charge on company cars from April 2002, the implications of IR35, for which Sullivan says SMEs should seek specialist advice, and the tax relief to be offered for funds invested in R & D.
Even if small business owners decide to put their feet up this Christmas and forget about the office for a week, Sullivan warns that these are significant issues, which have an ‘impact on the bottom line’.
She offers the following advice: ‘At the very least, do yourself a favour and ask your business advisor for his or her opinion when you return to work in the New Year.’