Overview of Topics

• Ways to trade – sole trader, company, partnership, LLP...

• Tax driven indicators• Overview of sole trade• Overview of company• Allowable expenses – what to claim• Bookkeeping – the key considerations

Ways to Trade

• Sole trader business– A relatively informal method of operating– Only filing requirement being the self assessment tax return

• Limited company– Separate legal entity with own identity– A more formal operating vehicle– Profit extraction a key consideration– Accounts to be prepared for Companies House– Directors employed, shareholders own the company

Tax Driven Indicators• Does my private practice income take my

total annual earnings above £150k? Am I now paying 50% personal tax!?

• Does my private practice income take my total annual earnings above £100k? Have I lost my personal allowance?

• Is my spouse a higher rate tax payer? If not, could they take dividends from my company effectively tax free?

Overview of Sole Trade

• Requirement to prepare a summary of income and expense for each fiscal tax year.

• Profits from the trade are subject to personal tax at potentially 50% if annual earnings exceed £150k.

• Personal tax is paid each January with an interim payment on account payable in July each year.

• The profits are taxed in full on the person operating the trade. The profits can not be sheltered or divided between participants.

Overview of Limited Company

• Requirement to file company accounts each year with Companies House. The accounts are available to the general public.

• All company profits are subject to corporation tax at 20% or possibly 26% if profits exceed £300k.

• Corporation tax is payable once each year based on the taxable profit figure.

• The profits must be extracted using a formal dividend which is itself taxable on the shareholder.

• The company structure allows for profits to be sheltered from the highest rates of personal tax.

• A low earning shareholder may take dividends tax free.

Allowable Expenses

• Has the expense been incurred ‘wholly and exclusively’ for the purpose of the trade?

• Motor expense is a contentious area, a mileage log is vitally important.

• Common costs include :• Room rental• Secretarial fees• Medical assistant fees• Computer costs• Professional indemnity insurances

• Keep an accurate list of income accrued including date the work was done and date the cash was received.

• Keep a record of the bad debts.• Sequentially number the sales invoices issued.• Make sure that income is banked and costs paid from the

business bank account.• Keep copies of the purchase invoices to support your

expense claims.• Remember to take a ‘snapshot photograph’ of your

business at the business year end. What monies are receivable and payable at the year end date.

• Keep it simple! Microsoft Excel is usually a safe bet.

Bookkeeping – Key Considerations