Which business structure is best for me?

Which business structure is best for me?

Starting a business on your own can be very exciting. You get to be your own boss, and plot your own course. There are lots of things to think about and you will need to make lots of decisions about many aspects of your business. One such decision you’ll need to take very early on in your entrepreneurial journey is the structure of your business.

In short, which business structure is best for me?

The decision is really between four different structures: sole trader, partnership, limited company or limited liability partnership.

Should I set up as a sole trader?

Setting up as a sole trader is the most simple way to start a business. It’s incredibly straightforward, with very little paperwork, less red tape, and fewer costs involved.

If you want to get going quickly, with less paperwork and compliance, it’s a great option.

There are, however, a few disadvantages. Namely, any business debt accrued is your own, there is no limitation of liability. And your profits are taxed as self-employment income. Tax rates for 2017/18 are 40% where your gross income exceeds £45,000.

To set up as a sole trader, you’ll need to register as self-employed with HM Revenue and Customs (HMRC) and complete a personal tax return annually too. One tip we would recommend is to open a separate business bank account to keep your personal and business finances separate enabling you to have better control over both.

Should I set up as a partnership?

Setting up a partnership is step beyond a sole trader model where you go into business with someone else. This is great to work together with someone and bounce ideas off each other.

It has many of the advantages of a sole trader business, being flexible and having less paperwork. But also has some of the same disadvantages. As a partner you are jointly liable for the whole debt of the partnership and again there is no limit on liability. Each partner is taxed on their profit share as self employment income. A partnership tax return will need to be completed in addition to each partners own personal tax returns.

We would recommend for most partnerships that a a partnership agreement is drafted to cover all the legal bases, including detailing how the profits, liabilities and ownership is split and what happens when a partner wants to leave the business.

Should I set up a limited company?

Setting up a limited company adds real credibility to a business. Even if you’re completely on your own, you can operate with the perception of scale and security; something many would-be clients will look for before handing out lucrative contracts.

The biggest advantages is as a limited company is its own legal entity, you liability as shareholder is limited (in other words, you won’t be liable for all business debt accrued (unless you have given personal guarantees).

However structuring your business as a limited company requires a great deal more paperwork than if you were to start as a sole trader, and the ongoing management can be onerous. This is something that puts some people off setting up a limited company

For example, there are certain legal responsibilities that you must fulfil as the director of a limited company, and being a limited company involves much more administration.

A limited company must prepare annual accounts at the end of the financial year, and complete a corporation tax return. A limited company must also submit an Annual Return to Companies House, outlining information regarding directors, shareholders, and the company’s registered office.

Another major plus for opting to set up as a limited company is the favourable tax landscape. Corporation tax is on its way down to 19% from 20% in April 2018, before dropping again to 17% in April 2020.

Consideration would need to be given as to how you would remunerate yourself and the tax consequences of this would need to be considered. Should you pay yourself a salary? Dividends? Or a combination of salary and dividends?

Should I set up a Limited Liability Partnership?

This structure is really a combination between a partnership and a limited company. It gives you the limited liability of a limited company but also gives you the flexibility of a partnership. But it is taxed in the same way as a traditional partnership which can be less favourable than a limited company. This structure is more typical of professionals such as solicitors or accountants.

Which should I choose?

The answer to this comes down to your circumstances.

Do you want the benefit of limited liability? Or are you happy that this would be a low risk.

What is your tax position? Which regime would be more tax favourable to yourself?

Are you testing the water with a new business idea? Well, it’s much easier and quicker to get started as a sole trader. That way you can see if there’s a demand for your product or service and perhaps set up a limited company a year or so down the line. Unravelling a limited company after a few months of trading if your venture is not successful, on the other hand, can be a costly endeavour.

But, if you’ve done your due diligence and you know there’s a market to be tapped into, setting up as a limited company can provide you with credibility and shield you from risk.

Still not sure? Let’s talk

If you’d like to discuss business structure options in greater detail, one of our friendly team members will be happy to do so.

Simply fill out our contact form, or visit www.saint.co.uk for our contact details.

How a recent decision in the court of appeal affects VAT on holiday park’s electricity supply

How a recent decision in the court of appeal affects VAT on holiday park's electricity supply

HMRC have recently won the case of HMRC vs Colaingrove in the Court of Appeal. Colaingrove operates various holiday parks across the UK including Haven. It offers cut-price holidays in static caravans or chalets to the readers of The Sun newspaper. One of the features of the offer is that the customers must pay a separate charge for the electricity that will be supplied to the caravan or chalet. As it was not practical to engage in meter reading for each holidaymaker, a set charge of £12 per day is payable at least 56 days in advance of the commencement of the holiday.

Fuel for domestic use is charged to VAT at the reduced rate of 5%. Hence it is accepted that metered electricity supplied at pitch-sites to those who own their own caravans was liable to VAT at the reduced rate.

Colaingrove argued that the supply of the accommodation in The Sun holiday offer was separate to that of the electricity and that the later was, therefore, subject to VAT at 5% and not the standard rate of 20% which applied to the caravan/chalet accommodation. HMRC accepted that if the supply of electricity was done on a metered basis it would constitute a separate element of the supply and would also be liable at the reduced rate. However, because a flat-fee was payable which did not relate to the amount of power consumed by any particular customer the supply was a composite supply liable to VAT at the standard rate applicable to the supply of the holiday accommodation.

The Court decided in favour of HMRC saying that The Sun holidaymaker purchased a package of goods and services and paid a standard rate where fuel was not optional. The charge made for electricity provided in Colaingrove’s holiday accommodation could not be split out from the provision of that holiday accommodation and was therefore liable to VAT at the standard rate. The supply of holiday accommodation is a different transaction from the supply of fuel to the owner of a caravan parked on a pitch owned by the appellant.

As is always the case with VAT, it is very important to look carefully at what you are actually supplying and in particular are you making a composite supply or separate single supplies. The VAT issues with regard to caravans are complex and ever shifting.

Please contact Saints Tourism & Leisure on 01228 534371 if you need further advice.

Selling land to a developer – is that trading or a capital gain?

TRADING OR A CAPITAL GAIN

Farmers and other landowners will often be approached by developers seeking to obtain planning permission to build on the land. Great care is needed to avoid unnecessary tax charges on the transaction. HMRC have recently updated their guidance on transactions in land clarifying that under certain circumstances some of the eventual profit can be taxed as income, not a capital gain. For individual property owners that could mean 45% income tax as opposed to just 28% CGT.

For example, a landowner sells some land to a developer for £5 million plus 10% of any profit on the development over £6 million. If the profit on the project was £8 million then the additional £200,000 would be taxed as a trading profit.

The tax rules in this area are complex. If you are involved in such a deal contact us so we can advise on the best way of structuring the transaction.

Does the new 16.5% VAT flat rate percentage apply to your business?

DOES THE NEW 16.5% VAT FLAT RATE PERCENTAGE APPLY TO YOUR BUSINESS

The new VAT flat rate of 16.5% started to apply from 1 April 2017 for “limited cost traders”.

A “limited cost trader” is one using the VAT flat rate scheme but where the VAT inclusive cost of goods for a year is less than 2% of VAT inclusive turnover, excluding certain specified items.

Those specified items include capital expenditure, food, fuel, and vehicle costs.

If you are currently using the VAT flat rate scheme contact us to discuss whether the changes will apply to you.

Ten reasons why you need a specialist accountant for your hospitality business

Ten reasons why you need a specialist accountant for your hospitality business

Saint’s Tourism & Leisure (ST&L) have many years experience in advising clients who run hotels, guest houses and holiday parks. Here are ten reasons why you need ST&L as part of your professional team.

1. Time of purchase

Whether you’re buying a hotel, guest house, or holiday park, we need to be involved at an early stage of your negotiations, and certainly before you sign a purchase contract.

We can give advice on the best apportionment of the purchase price for you, the stamp duty implications of the apportionment, and claims to tax relief via capital allowances, including those on items fixed into the property such as sanitaryware in en-suite bedrooms, etc.

2. Keeping an eye on gross profit margins

Amalgamating sales and all the associated purchases to produce one overall gross profit and GP% for the business may seem simple. But such a performance indicator can be masking the financial performance of the different sides of your business.

Food and beverage sales have associated direct costs, and margins on these specific areas can be masked by room sales which carry fewer direct costs in the form of guest supplies, laundry and booking commissions.

3. Specialist format accounts

While we offer a simple set of accounts for houses, hotels and holiday parks are diverse businesses with effectively lots of different income streams.

It is essential to see how each part of the business is doing, and to this end, we provide specialist format accounts for guest houses, hotels and holiday parks which show key performance indicators and the key cost areas.

Our accounts contain lots of graphs and pie charts so you can easily understand what the figures mean for your business.

4. Departmentalised payroll reporting

In a service led industry, payroll costs are one of the largest outgoings and need to be carefully monitored and controlled. In addition to processing payroll for PAYE and national insurance, we also provide departmentalised payroll reports, showing the cost of running each operation within your business.

Auto-enrolment pension costs also need to be factored into the overall cost of your staffing costs. We can set up a scheme for you, and make the necessary payments to your pension provider on your behalf.

5. VAT issues specific to tourism businesses

Advance guest deposits, cancellation fees, and gift vouchers are all part of hospitality business transactions.

There are special VAT rules regarding these types of transactions, and getting them wrong can mean either overpaying VAT or the risk of penalties for underpayment.

6. Dealing with tips and troncs

Guests like to leave gratuities to staff for good service. You, as an employer, probably want to ensure that tips are fairly shared between your staff, and the tips are subject to as few deductions as possible.

There are various ways to legitimately deal with tips, such as using a troncmaster, whereby tips will not be subject to national insurance contributions.

7. Benefits in kind specific to hotel staff etc.

Providing living accommodation to staff and meals while working can result in a tax charge for a benefit in kind.

We can assist with understanding the rules to reduce taxes and charges where possible, and complete the necessary tax year end P11Ds.

8. Business Plans and helping to raise finance

Obtaining funding has been difficult since the credit crunch, and financial institutions now look more closely at the financials.

ST&L can assist in reviewing the required figures and, if necessary, putting together a cashflow forecast or business plan specific to a hospitality business.

9. Tax Strategy on sale

The time of sale is another critical time to get ST&L on board. We can assist in preparing accounts specifically for the purposes of presenting the business in the best light for the purposes of sale.

Thereafter, we advise on the best apportionment of the sale price, how to minimise capital gains tax liabilities, and how to deal with capital allowances.

10. Inheritance Tax (IHT)

If you have a business in your estate on death, Business Property Relief (BPR) should be available, which reduces the value of your estate for IHT.

For many years now, HMRC have argued that a Holiday Park is effectively a rental business and denied BPR. ST&L’s Park Format Accounts are key to providing the necessary evidence that Park income is derived from services as well as pitch fees.

Get in touch with us to arrange a coffee and a chat with Saint’s Tourism & Leisure

Should we give shares to children and pay £5,000 dividends tax free?

SHOULD WE GIVE SHARES TO CHILDREN AND PAY £5,000 DIVIDENDS TAX FREE

The introduction of the £5,000 tax-free dividend allowance has tempted many family company shareholders to give shares to other family members so that they can be paid £5,000 a year tax-free. (Note that this allowance reduces to £2,000 from 6 April 2018).

Such a strategy needs to be carefully structured as there can be Capital Gains Tax on the gift of shares, and HMRC may also seek to tax the dividend as employment income under certain circumstances. The dividend will also be taxed on the parents if received by a child who is a minor.

If you are considering giving shares to other family members and then paying dividends, please come and talk to us first so that we can deal with this correctly.

Small Dairy Farmers Scheme – applications are now open

dairy cattle

Applications for the above scheme for England opened on 24th April 2017, and are now open for Northern Ireland too from 9 May 2017. The deadline for applications to both schemes is 31 .May 2017.

If you supplied up to and including 1 million litres (or kilograms equivalent) for the year ended 31 March 2016, and are still milking now, you are eligible to apply to the scheme. The total fund for England is £8.5 million, and Northern Ireland is £4.1 million*. The scheme will provide a one off payment to eligible farmers who choose to apply. Payment rates depend on the number of applications received, and are pro rata per litre supplied, capped at 500,000 litres.

The application forms are available here –

England

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/610375/SDFS1_v1.0_Small_Dairy_Farmers_Scheme.pdf

Northern Ireland

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/613074/SDFS1-NI_v1.0_Small_Dairy_Farmers_Scheme.pdf

Cross border farmers may also be eligible to apply, depending on where their land lies.

Completed forms should be emailed (or posted if email is not available) together with proof of production (milk statements) as soon as possible.

*Northern Ireland scheme value of £4.1 million is being spent across a range of measures, with the amount of funding remaining from the Northern Ireland Exceptional Adjustment Aid (EAA) allocation.

Pig producers can apply to this fund too – the Pig Industry Competitiveness Scheme. This scheme will cover the cost of in-feed medication for pig-herds and blanket treatment of sows to help producers control endoparasites.

To be eligible for the scheme, producers must:

  • have a Category 1 or Category 2 DAERA Farm Business Identification Number;
  • have a representative of the farm business attend a Farm Family Key Skills pig health training course on worm control, through the College of Agriculture, Food and Rural Enterprise (CAFRE); and
  • obtain written confirmation from their vet that, in their professional opinion, there are, or have been in the last six months, pig endoparasites present in the herd.

Funding will only apply to medication purchased after the producer has been accepted onto the Scheme by DAERA.

For further help, or if you require clarification, then please don’t hesitate in contacting on of our Farming Team or  Will Robinson at our Carlisle office 01228 534371 or email wr@saint.co.uk or call his mobile 07475 470132.

Small Dairy Farmers Scheme – Do you qualify?

dairy cattle

Applications for the above scheme are now open, with a fund value of £8.5 million, with this fund being for England only, and designed to provide a one off payment to eligible farmers.

If your total milk deliveries in the reference period 1 April 2015 to 31 March 2016 were upto and including one million litres (or equivalent kilograms), and you are still milking, you are eligible to apply to the scheme.

The application form can be found at

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/610375/SDFS1_v1.0_Small_Dairy_Farmers_Scheme.pdf

Guidance notes can be found at https://www.gov.uk/guidance/small-dairy-farmers-scheme

It is suggested that the form is completed and emailed to smalldairyfarmersscheme@rpa.gsi.gov.uk, and we suggest that if you qualify, you should apply as soon as possible.

For further help, or if you require clarification, then please don’t hesitate in contacting Will Robinson at our Carlisle office 01228 534371 or email wr@saint.co.uk or call his mobile 07475 470132.

New partner appointed at Saint & Co

Darren Little is pictured above left with Ian Thompson outside our Ambleside Office
New Partner, Darren Little is pictured above left with Ian Thompson

Saint & Co, one of Cumbria and South West Scotland’s largest independent firms of Chartered Accountants, would like to announce the appointment of Darren Little as partner at our Ambleside Office.

Born and raised in Carlisle, Darren attended Morton School before gaining his degree in Accountancy & Finance at Lancaster University. He joined the firm’s Carlisle office as a trainee in 2003, qualifying as a Chartered Accountant in 2006.  Darren then moved to the Ambleside office as Audit Manager, to work alongside Ian Thompson.

Darren enjoys guiding and supporting a wide range of clients through the audit process and he has a significant amount of experience in working with academies.

Saint & Co was formed in 1884 and now has 13 partners and over 100 staff. We offer the following key service areas; accountancy, audit, taxation, payroll, financial services, and have ten offices throughout Cumbria and South West Scotland.

Partner, Ian Thompson said, “Darren has made a significant contribution to the firm; his promotion is well deserved and recognised by both clients and fellow colleagues.”