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Essay / Research Paper Abstract
This 4 page paper looks at a case study supplied by a UK student. A man is starting a business, expecting to make a loss in the first year and then a £90,000 in following years. The paper looks at the potential tax and national insurance liabilities for remaining self employed or setting up a limited company. The bibliography cites 5 sources.
Page Count:
4 pages (~225 words per page)
File: TS14_TEselfltd.rtf
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Unformatted sample text from the term paper:
to see any profit, and may result in a loss but after this profits will increase to 90,000 per annum. Mr Smith needs 30,000 a year to live on. In
the first year this will come from his savings. There is also the expectation that Mrs Smith will work in the business. If we look at the business and
Me Smith sets this up as a sole trader he will be taxed under schedule D, the self employed category and as such will have the profit taxed as if
that is his own income, as a self employed person this is his income, even if he does not use it all. This is a more straightforward method of accounting
in terms of the legal requirements, but it also has some inherent risks, as unlike a limited company, Mr Smith will also be personally liable for all business debts, as
the business does not have a separate identity (Elliott and Elliott, 2005, Card et al, 2004). If we look at the way tax will be paid we can compare the
two set ups. We will assume that Mr Smith has the personal allowance and a married couples allowance for the tax year 2006/7 which is 5,035 + 2,280 = 7,315.
Then tax will be payable at the lower rate on the next tax band. The tax for year 2006/7 on the 90,000 profit would result in the following tax
Income Tax rate Tax payable Tax Allowance 7315 0 0.00 Lower band 2090 10% 209.00 Basic rate 30,310 22% 6,668.20 Higher rate 50,285 40% 20,114.00 Total 90,000 26,991.20
In addition to the tax there will also be national insurance due. Self employed people have to pay class 2 national insurance and also class 4 if their earnings are
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