The key points and highlights from Howard Weintrob’s presentation “Business Structure and Tax Efficiency” In a Sole Trader business structure, potential savings between 40% tax rate and company tax rate of 20% if excess profit is retained. Self-employment/partners can achieve significant NI savings. It is quite popular to pay dividends to avoid NI but companies must generate a profit to pay dividends! Limited Liability Partnership combines the benefits of being taxed personally but with limited liability protection. For sole trader/partner, losses in the first 4 years of trading can be carried back to the last 3 years’ income and obtain a refund. The Research and Development project must seek to achieve an advancement in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty and not simply an advancement in own state of knowledge or technology. The expenses allowed for tax purposes are anything incurred WHOLLY and EXCLUSIVELY for the business and are of a revenue nature. Enterprise Investment Scheme is a tax efficient way of investing into a company as investors obtains 30% tax relief but must be for less than 30% of share capital. Howard’s presentation was part of TechStartHub Startup Masterclass: How to make sure you’re investment and exit ready held last November 8 at University College London – Roberts Building. The next masterclass, Expert Advice on Website Content Strategy, Analytics, and Community Building, will be held on November 28 at the Innovation Warehouse. by: Cris Kerwin Pabuaya

1. BUSINESS STRUCTURE & TAX
EFFICIENCY
November 2011
PRESENTER:
Howard Weintrob FCA CTA
Jeffreys Henry LLP
Finsgate
5-7 Cranwood Street
London
EC1V 9EE
Jeffreys Henry LLP has been shortlisted in the ‘Best Service Provider to Startups’
category by The Europas (The European Tech Startup Awards).
Content is for information only. No action should be taken without seeking professional advice
Jeffreys Henry LLP 2011

2. A. SOLE TRADER
Personal Allowance currently £7,475
Basic rate to £35,000 @ 20%
Higher rate thereafter @ 40%
Class 4 NIC £7,225 - £42,475 @ 9%
Thus, would not normally think about incurring costs and
administration of incorporation until a profit of, say, £50,000.
Then potential saving between 40% tax rate and company
tax rate of 20% if excess profit retained.
However, protection of limited liability may be overriding
factor.

3. B. PARTNERSHIP
Here, effectively, the above figures are increased by the
number of partners.
National Insurance issues – Employing people costs 13.8%
once the weekly salary is over £136, and over £139 a week
the employee suffers 12%. There is no upper limit for the
employer but £42,475 p.a. is an upper limit for employees,
then at 2%.
Thus self-employment/partners can achieve significant NI
savings.

4. C. COMPANY
Corporation tax is 20% for small companies and not
due until 9 months after the year end. Thus clear
cash flow advantage as PAYE due monthly.
Quite popular to pay dividends to avoid NI but the
company must generate a profit to pay a dividend!

5. D. LIMITED LIABILITY PARTNERSHIPS
Combines the benefits of being taxed personally but
with limited liability protection. Thus accounts
prepared and each partner taxed on share of taxable
profit – very useful where perhaps key members of
staff can be a partner for income tax purposes but
perhaps no interest in equity of the company.
Losses – NB: For a sole trader/partner losses in first 4
years of trading can be carried back to the last 3 years
income and refund obtained.

6. E. RESEARCH & DEVELOPMENT
A useful uplift that can also be used as a credit against PAYE. Only
available for companies. For the current year the qualifying R&D
can be increased to 200% and for next year onwards 225%.
However currently need to spend £10K but this limit is being
removed from April 2012.
We need to look at the definition. The R&D project must seek to
achieve an advance in overall knowledge or capability in a field of
science or technology through the resolution of scientific or
technological uncertainty and not simply an advance in own state of
knowledge or technology.
Best example is in relation to the internet.

7. F. WHAT EXPENSES ARE ALLOWED FOR TAX?
Anything incurred WHOLLY AND EXCLUSIVELY
for the business and is of a revenue nature.
If its capital we need to look more closely to
see if it can qualify for capital allowances.

8. G. ENTERPRISE INVESTMENT SCHEME
Tax efficient way of investing into company as
investor obtains 30% tax relief but must be
for less than 30% of share capital (cannot
avoid using family!).