The Touche Ross Tax Guide for the Self-Employed

Transcription

1 The Touche Ross Tax Guide for the Self-Employed

2 Also available in Papermac: The Touche Ross Tax Guide to Pay and Perks by Bill Packer and Elaine Baker

3 The Touche Ross Tax Guide for the Self-Employed BILL PACKER, MA, FCA National Tax Technical Director Touche Ross & Co and COLIN SANDY, ATII Tax Manager Touche Ross & Co M MACMILLAN

4 Copyright Touche Ross & Co Softcover reprint of the hardcover 1st edition 1985 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright Act 1956 (as amended). Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. First published 1985 by PAPERMAC (paperback) and THE MACMILLAN PRESS LTD both divisions of Macmillan Publishers Limited 4 Little Essex Street London WC2R 3LF and Basingstoke Associated companies in Auckland, Delhi, Dublin, Gaborone, Hamburg, Harare, Hong Kong, Johannesburg, Kuala Lumpur, Lagos, Manzini, Melbourne, Mexico City, Nairobi, New York, Singapore and Tokyo British Library Cataloguing in Publication Data Packer, Bill The Touche Ross tax guide for the self -employed. 1. Self-employed-Taxation-Great Britain I. Title II. Sandy, Colin 336.2'07 HJ4707.Z7 ISBN ISBN (ebook) DOI / Typeset by Filmtype Services Ltd., Scarborough Neither Macmillan Publishers, nor the authors, nor Touche Ross & Co. can assume legal responsibility for the accuracy of any particular statement in this work. No responsibility for loss occasioned to any person acting or refraining from action as a result of the material in this publication can be accepted by the authors or publishers or Touche Ross & Co.

5 Contents Preface xi 1. SO YOU WANT TO BE SELF-EMPLOYED 1.1 Introduction The advantages and disadvantages of being self-employed National insurance contributions- past and future Past contributions to the employer's pension scheme Paying tax - how and when Taxable element- salary v. profit THE EARLY YEARS 2.1 Advising the Revenue Recovery of tax paid under P AYE Books and records Taxation of the early years' profits Choosing the accounting date Making a loss Value added tax Taxable persons Taxable supplies 30 v

6 vi Contents Business Exempt supplies Tax rates The standard rate Registration Tax invoices Books, records and control visits Government assistance Development Agencies Local Enterprise Agencies Enterprise Allowance scheme 'Burdens on business' CAPITAL EXPENDITURE AND ALLOWANCES 3.1 Capital expenditure Plant and machinery First-year and writing-down allowances Industrial buildings Agricultural buildings Grants Value added tax WHEN THE BUSINESS IS IN BUSINESS 4.1 Raising finance for expansion Change of accounting date Rollover relief Taking on employees Staff requirements Employment law Salary package Bonus schemes Cars 72

7 Contents Vll Pension schemes Keyman insurance The proprietor's wife PAYE National insurance contributions Statutory sick pay PREPARING FOR RETIREMENT 5.1 Retirement annuities Loan back facilities Self-administered schemes THE FINAL YEARS 6.1 When does a business cease? Post-cessation receipts and expenses Closing years' rules of assessment Losses in the final years Retirement relief (capital gains tax) Deregistration for VAT purposes THE BUSINESS PARTNERSHIP 7.1 Definition of a partnership Assessment for tax purposes Normal basis On a change of partner Capital allowances Work in progress Partnership losses Investment income Annual charges Annuities Tax relief on borrowing Partnership agreements 120

8 viii Contents 7.8 Salaried partners Value added tax Capital tax aspects and tax planning Capital transfer tax Capital gains tax Practical effect of variation of terms of partnership agreement AND CO. LTD 8.1 Advantages and disadvantages of corporate structure Limited liability Borrowing and attracting finance Retirement benefits Statutory requirements The taxation of companies The scheme of corporation tax Advance corporation tax Dividends received by a 138 company Capital gains of companies Double taxation of capital gains Close companies Losses Remuneration or dividends Transfer of a business to a limited company Assessments on transferor business Valuation of trading stock Transfers of fixed assets Losses 148

9 Contents ix Capital gains tax Value added tax Stamp duty Capital duty Employees Capital transfer tax Benefits of planning Valuation of shares Business property relief The use of trusts The discretionary settlement The personal settlement The accumulation and maintenance settlement Use of life insurance Getting cash out 165 APPENDIX A Income tax rates and allowances 1985/ APPENDIX B Corporation tax rates 1984 to APPENDIX C National insurance contributions 1985/86 Period 6 April to 5 October APPENDIX D National insurance contributions 1985/86 Period 6 October 1985 to 5 April APPENDIX E Capital taxes 1985/ APPENDIX F Trading expenses- tax-deductible items 175 APPENDIX G Trading expenses- non-allowable items 177 APPENDIX H Capital allowances - plant and machinery 178

10 Preface For generations, people have been fired with enthusiasm to run their own business and in spite of the hard work and the financial risks involved to 'do their own thing'. It is not for nothing (as he may well have had cause to reflect somewhat ruefully in the years of exile) that Napoleon condemned the British as 'a nation of shopkeepers'. It is perhaps ironical that income tax was introduced (only as a temporary tax!) into the United Kingdom at just about the same time as that remark was made, as taxation in all its forms represents one of the major challenges that the modem businessman or businesswoman has to face. This book sets out to identify and illuminate those areas of the tax legislation which need to be recognized by individuals in setting up and developing their own business and how the legislation can in many cases be turned to their advantage. Instead of approaching the subject by considering the legislation as it applies to specific aspects, the book follows the development of an imaginary business from its inception, through development and expansion, to its close. It also looks at the effects of going into partnership and of incorporation, as well as at some of the other issues that may be encountered, such as the obtaining of grants and the impact of employment law. xi

11 xii Preface For simplicity the book sets out the authors' understanding of tax law and practice applicable at the time of writing, including the changes introduced in the Finance Act In general it does not deal with earlier provisions except where these may be helpful in appreciating the current position. While the book seeks to be as informative and comprehensive on these matters as possible, within the constraints of space, its application to any particular set of circumstances does require care and full appreciation of the relevant facts. In considering a specific situation relating to their affairs, readers should always seek competent professional advice. The authors would like to record their thanks to Elaine Baker who provided much of the original inspiration for this book. London 1985 WRP CTS