The rising costs of private education, compounded by the introduction of VAT on school fees in January, are expected to impact more than half of children in private schools.

According to a survey of 2,000 high-net-worth individuals (HNWIs), 993 parents with children in private education expressed concerns about the financial burden.

Over half (55%) of these parents fear their children’s education could suffer solely due to the addition of VAT. One in eight plan to transfer their children to state schools, with many already struggling to afford the fees before the tax change.

Only 15% of parents confirmed they have no plans to withdraw their children from private schools, while 6% admitted that their biggest worry is affording the fees—up from 0% in a previous report by Saltus.

In addition, one in five parents are considering moving their children to a less expensive private school within the next year. Some even contemplate relocating abroad, citing Labour’s stance on private education fees. 17% said they would cut spending in other areas to keep their children in private schools.

Despite these concerns, overall confidence in the economy among HNWIs has risen from 78% to 84%, the highest level in six years.

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There is concern that scrapping non-dom status could lead to wealthy individuals leaving the UK, undermining the expected revenue gains.

The Treasury is reassessing parts of Labour’s manifesto plan regarding the abolition of the non-domicile (non-dom) tax status, amid concerns over how much revenue it would actually raise.

A non-dom is a UK resident whose permanent home (domicile) for tax purposes is outside the UK. While no formal policy has been submitted to the Office for Budget Responsibility (OBR), Treasury officials are concerned that scrapping concessions introduced by the previous Government may not generate the £1 billion anticipated.

This £1bn, earmarked for hospital and dental appointments and school breakfast clubs, could be lost if wealthy individuals change their behaviour. The OBR’s March forecast suggested that behavioural changes would likely reduce the projected revenue.

Treasury officials acknowledge the high degree of uncertainty, as small shifts in assumptions about emigration could significantly reduce any potential financial benefits. Therefore, the Government is considering phasing in changes or watering down aspects of the plan, such as applying inheritance tax to trusts or giving discounts on foreign income.

While non-dom status is still set to be decided, the Treasury insists any further changes must demonstrate that they will raise funds. For now, wealthy individuals may still have the opportunity to legally benefit by claiming domicile in lower-tax countries.

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The International Accounting Standards Board (IASB) has completed its post-implementation review of IFRS 15, the revenue recognition standard, concluding that it works as intended and provides valuable information for investors.

Issued in 2014, IFRS 15 was the first standard jointly developed with the US Financial Accounting Standards Board (FASB) to ensure consistent revenue recognition across global markets.

Despite the positive outcome, the review highlighted some application challenges. Companies and accounting firms reported that implementing IFRS 15 required significant effort, though they have since developed appropriate accounting policies and procedures.

Stakeholders emphasised that while the five-step revenue recognition model offers a solid framework, applying the standard to complex transactions remains demanding. Many have requested additional guidance, including illustrative examples and educational materials, to ease its application.

While the overall feedback was favourable, the IASB has identified several areas needing further attention. These include determining whether a company acts as a principal or agent in transactions, handling customer payments, and assessing control over intangible assets and services. Additionally, stakeholders highlighted the need for better alignment with other standards, such as IFRS 10, IFRS 11, IFRS 12, and IFRS 16.

The IASB plans to address these issues in its next agenda consultation, scheduled for late 2025, to ensure the standard meets investor needs without causing further disruption.

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How SMEs can thrive through international growth.

Small and medium-sized enterprises (SMEs) are often seen as the backbone of the economy, contributing significantly to job creation and innovation. As the world becomes increasingly interconnected, more SMEs are considering international expansion as a growth strategy. While this presents exciting opportunities, it also comes with its own set of challenges. We’ll explore how SMEs can expand internationally while managing risks and maximising potential.

The appeal of international expansion

Expanding into international markets can open doors to new customers, partnerships and revenue streams. For SMEs, this could mean moving beyond the limitations of a domestic market and tapping into the global demand for their products or services.

UK SMEs that export internationally tend to grow 20% faster than those that operate solely in domestic markets. Moreover, companies with a global footprint are often more resilient during economic downturns, as they can rely on diverse markets to stabilise revenue. Exporting also leads to increased productivity, with research from the Department for International Trade suggesting that SMEs that begin exporting see an average productivity boost of around 34%.

Despite these benefits, international expansion is not without risk. SMEs must consider various factors, including regulatory compliance, taxation, logistics and local competition. The key is to be prepared and to take informed, strategic steps.

Challenges and opportunities in international expansion

Regulatory hurdles

One of the biggest obstacles for SMEs looking to expand internationally is dealing with different regulatory environments. Every country has its own set of rules regarding trade, customs, taxation and employment. Failing to comply with these regulations can lead to hefty fines and damage your company’s reputation.

For example, if you’re exporting goods to the EU, you must follow strict VAT and customs regulations, which can vary depending on the specific product or service you’re offering. Brexit has also added a layer of complexity for UK-based businesses trading with European countries.

Cultural differences

Cultural understanding is also vital. Consumer preferences, business etiquette and even marketing strategies can differ drastically from one country to another. Misreading these differences could result in a product that doesn’t sell or marketing efforts that don’t resonate with the target audience.

Many SMEs initially struggled in new markets because they didn’t adapt their offerings to local needs. For instance, a food manufacturer that successfully exports to the US might need to alter recipes to suit local tastes when entering Asian markets.

Currency fluctuations and financial risks

Operating in multiple currencies introduces the risk of fluctuating exchange rates. Even small changes in currency values can significantly affect profit margins, especially for SMEs with tighter financial constraints.

Managing foreign exchange risk is crucial. Some SMEs set up contracts that lock in exchange rates to avoid unpleasant surprises. Others may find it useful to work with a financial adviser to mitigate these risks and develop a currency strategy that protects the business.

Expanding abroad for cost efficiencies

While the primary focus of international expansion often revolves around accessing new markets and boosting sales, it can also offer substantial cost-saving opportunities. By hiring staff or working with suppliers in regions where operating costs are lower than in the UK, SMEs can potentially reduce expenses. For example, outsourcing production or services to countries with lower wage costs or favourable exchange rates could significantly enhance profit margins. Additionally, diversifying suppliers internationally can mitigate the risk of relying solely on UK-based suppliers, offering both cost advantages and supply chain resilience.

Choosing the right structure for international trade

Another critical consideration when expanding internationally is determining the most appropriate structure for your business operations. SMEs must decide whether to trade entirely from the UK or establish a branch or entity in the target country. Each option has different implications for tax, regulatory compliance, and operational control.

Setting up a local entity can offer benefits like improved credibility with local customers, but it also involves more regulatory responsibilities and potentially higher costs. On the other hand, trading from the UK might simplify matters initially but could limit your ability to take full advantage of local market opportunities. Consulting with an accountant or financial adviser can help identify the best structure for your expansion plans.

Steps to successful international expansion

1. Conduct market research

The first step in international expansion is thorough research. Understand the market dynamics of the country you want to expand into. Identify the demand for your products or services, the competition and the regulatory environment. It’s important to know if there’s enough potential for growth to justify the costs of expanding.

Many free or low-cost tools are available, such as the UK’s Export Academy, which offers support for SMEs looking to expand abroad. Resources like these can provide invaluable insights into your target region’s market trends, consumer behaviour and industry standards.

2. Build local partnerships

Having the right partners in place can make a huge difference when entering a foreign market. Local partners can help you navigate legal requirements, customs regulations and other challenges that might not be apparent to someone unfamiliar with the local market.

For instance, working with a local distributor or an agent who understands the local retail landscape can save you time and money. Similarly, hiring local talent or setting up a local advisory team could give you the cultural insights needed to effectively tailor your products and services.

3. Adapt your product and marketing strategy

Successful international expansion often requires product and service adaptation. Your current offerings may need adjustments to align with local consumer preferences, and your marketing strategy may also need to shift to resonate with the local audience.

Take the time to understand cultural nuances, and consider adjusting everything from packaging design to marketing channels. In certain markets, social media platforms like WeChat or Line may be more popular than Facebook or Instagram, requiring a shift in digital strategy.

4. Financial planning and currency risk management

A sound financial plan is essential when expanding abroad. Consider all costs, from initial market research to the setup of local operations, and prepare for unexpected expenses. Planning for cashflow disruptions is also crucial and common when moving into new markets.

One way to minimise financial risk is to set up multi-currency accounts to manage payments more effectively. Another option is using hedging strategies to protect against currency fluctuations. Working with an accountant experienced in international trade will give you a clearer picture of your financial exposure and the tax implications of operating in multiple countries.

5. Leverage technology

Technology plays a key role in international expansion. Tools like cloud-based accounting software can simplify financial management across borders. Meanwhile, customer relationship management (CRM) systems can help you track and nurture client relationships, regardless of location.

Additionally, eCommerce platforms have made it easier for SMEs to reach global audiences without needing a physical presence in each country. Online sales channels can be cost-effective for testing new markets before committing to larger investments.

Examples of successful SME expansions

BrewDog

Starting as a small craft beer company in Scotland, BrewDog now has a global presence with bars and breweries across the world. One of the keys to their success was their ability to connect with different consumer bases by adapting their marketing approach for each region. Their irreverent, bold style resonated in the US, while their environmentally friendly approach helped them succeed in European markets.

Innocent Drinks

Innocent Drinks started in the UK, but quickly expanded across Europe by maintaining a consistent brand message while tailoring their product offerings to local tastes. They successfully managed the balance between global consistency and local relevance by making subtle changes to their ingredients and marketing based on regional preferences.

Preparing for international tax considerations

Expanding into international markets means facing new tax obligations. Different countries have different rules for VAT, corporate tax and payroll schemes and understanding these is crucial to maintaining compliance.

For example, the corporate tax rate in the UK varies from 19-25%. However, if you’re expanding into the US, corporate tax rates vary by state and can go as high as 28%. Working with a tax professional is vital to ensure you’re not caught off guard by unexpected liabilities in your new market.

Additionally, double taxation treaties can help prevent paying taxes twice on the same income. The UK has over 130 such treaties, so depending on where you expand, this could help reduce your overall tax burden.

Furthermore, when employing individuals in other countries, you are likely to have to operate a payroll scheme and pay employee taxes to that country’s tax authority.

Why now is the time to expand

Despite economic uncertainty, international expansion remains a viable growth strategy. Globalisation is not going away, and with the rise of digital tools and platforms, it’s never been easier for SMEs to access international markets.

As of 2023, global eCommerce sales are expected to exceed £5tn, providing immense opportunities for UK businesses. At the same time, supply chains are evolving, and businesses that diversify their supplier and customer base across borders are more likely to weather potential disruptions.

By planning properly, managing financial risks and building the right partnerships, SMEs can unlock new opportunities and achieve sustainable growth in foreign markets.

Wrapping up

Expanding internationally is a significant and challenging step for any SME. However, with the right preparation, financial planning and understanding of local markets, it’s possible to succeed. We’ve helped numerous businesses leap international markets, offering guidance on everything from regulatory compliance to managing foreign exchange risk.

Let’s have a conversation about how we can support your business as you enter the global marketplace.

How to deal with a compliance check from HMRC.

Personal tax compliance checks can sound intimidating. However, with the right preparation and understanding, they don’t have to be. In this spotlight, we aim to walk you through what to expect during a tax compliance check, how to stay organised and ways to handle the process smoothly.

By offering clear, straightforward advice, we hope to give you confidence in facing any compliance check that may come your way.

What is a personal tax compliance check?

A personal tax compliance check is essentially an enquiry from HMRC into your tax return. It could be triggered by anything from simple errors to unusual activity, but it doesn’t necessarily mean you’ve done something wrong. HMRC conducts these checks to ensure that the information on your tax return is accurate and in line with UK tax laws.

Most checks are random or part of routine checks, and in many cases, they may only involve minor clarifications. It’s worth noting that HMRC’s advanced data analysis systems now flag potential issues with increasing precision.

According to HMRC’s data, around £33bn was lost in the 2021/22 tax year due to errors and failure to take reasonable care, making these checks a priority for the government.

Why might you be selected?

HMRC might select your tax return for review for a few common reasons. These could include:

• inconsistent information or discrepancies between your tax return and the data HMRC holds
• missing information or failing to declare income from various sources
• a significant change in income from one year to the next
• regularly filing late returns
• higher-risk occupations or industries (like cash-based businesses)
• random selection as part of HMRC’s routine investigations.

Understanding why you may be selected can help you respond more effectively to HMRC’s queries. Rest assured that, in most cases, checks are resolved quickly and without penalties, provided there is no evidence of intentional wrongdoing.

How HMRC selects returns for review

HMRC uses advanced technology and human insight to decide which tax returns to review. The Connect system, introduced in 2010, plays a significant role in this process. This system collects and analyses data from a variety of sources, including banks, employers, government departments and even social media. It then compares this data to the information provided in tax returns to identify discrepancies. In recent years, HMRC has emphasised using technology to ensure accurate tax returns, reducing the need for manual investigations.

While the majority of compliance checks are automated and randomly selected, certain behaviours can increase your chances of being flagged. If you’re self-employed, earn income from multiple sources or work in industries that deal heavily in cash, such as hospitality or construction, your returns may be subject to closer scrutiny. Furthermore, high-value transactions or significant changes in financial circumstances may trigger an investigation. HMRC is focused on ensuring that everyone pays their fair share, but the vast majority of checks are resolved without issue when the correct information is provided.

What happens during a compliance check?

Once selected, HMRC will contact you by letter to inform you that they are conducting a compliance check. This letter will outline the areas of your tax return they wish to review and may request supporting documents such as bank statements, invoices or receipts.

It’s essential to respond to this letter promptly. If you’re unsure about any part of the request or the information you’re being asked to provide, seek professional advice as soon as possible.

HMRC typically gives you 30 days to respond, but you can request an extension if necessary.

Depending on the outcome, the check could take a few different paths.

• No further action: If everything is in order, HMRC may close the enquiry without changing your tax return.
• Minor adjustments: If HMRC finds minor errors, they may adjust your tax return accordingly. You may need to pay any additional tax due or be refunded if you’ve overpaid.
• Further investigation: If HMRC finds more significant issues, they could extend the check, and you might face penalties or interest on unpaid tax. In rare cases, HMRC may conduct a full audit.

How to prepare for a compliance check

Preparation is key to handling a tax compliance check with minimal stress. Here are some steps to ensure you’re ready.

1. Keep thorough records

The best way to protect yourself during a compliance check is to keep accurate and thorough records of your income, expenses and deductions. HMRC requires you to keep records for at least five years after the submission deadline of the tax year they relate to. This includes:

• bank statements
• payslips
• invoices
• receipts
• investment records
• pension contributions.

Good record-keeping can help you quickly provide the evidence HMRC may request and resolve any discrepancies that might arise during the check.

2. Review your tax return carefully

Before submitting your tax return, double-check that all the information is correct and complete. Look for common errors like mistyped figures, missed deductions or failing to declare all sources of income. If you use accounting software, ensure it is up-to-date and all data is accurately entered.

3. Seek professional advice

If you’re not confident in managing your tax affairs, consider working with a tax adviser or accountant. They can help you prepare your return, spot any potential issues, and ensure that everything complies with HMRC regulations. According to recent statistics, around 65% of UK taxpayers use professional assistance to file their taxes, which can significantly reduce the risk of errors.

4. Respond promptly and clearly

When HMRC contacts you regarding a compliance check, respond to their letter quickly. Provide the requested information and documents in a clear and organised manner, and make sure that everything is legible and easy to understand. If you need extra time to gather the necessary records, let HMRC know as soon as possible, and they may grant you an extension.

Potential outcomes and penalties

Most compliance checks end with minimal disruption. However, if HMRC identifies errors or omissions, they may ask you to make additional payments or amend your return. In more serious cases, you could face penalties or interest on unpaid tax.

HMRC calculates penalties based on the nature of the error.

• Careless mistakes: If you’ve made a genuine mistake without trying to underpay your tax, penalties could range from 0% to 30% of the additional tax due.
• Deliberate underpayment: If HMRC finds evidence that you’ve deliberately understated your income or exaggerated your expenses, penalties could range from 20% to 70% of the additional tax due.
• Deliberate underpayment with concealment: In cases where taxpayers have attempted to hide their errors, penalties can rise to between 30% and 100%.

In rare cases, deliberate fraud or evasion could result in prosecution, but for most individuals, the key to avoiding penalties is cooperation and transparency during the compliance check.

If you realise you have made an error, HMRC is more likely to reduce a penalty or apply a lower percentage if the error is proactively disclosed rather than waiting for them to identify it. Providing HMRC with timely access to the necessary information in a straightforward manner can also help mitigate the penalty.

How to dispute an outcome

If you disagree with the outcome of a compliance check, you have options. HMRC allows you to request a review of their decision, which involves a different officer assessing your case.

You’ll need to submit this request within 30 days of receiving HMRC’s findings. Providing additional evidence or documentation supporting your position is essential during the review, especially if something was missed or misunderstood in the initial check. Disputes are often resolved at this stage, with HMRC amending their findings or providing clearer reasoning.

Should the review not resolve the issue to your satisfaction, the next step is to appeal to the tax tribunal. This independent body will examine the facts of the case and make an impartial decision. Most cases do not reach this stage, but knowing that a clear process is in place to protect your rights as a taxpayer is reassuring. Throughout this process, professional advice and support can make all the difference, ensuring your case is presented effectively and you understand each step of the process.

How a professional can help

Ultimately, a personal tax compliance check is part of HMRC’s efforts to ensure fairness in the tax system. Most individuals can resolve these checks with minimal fuss by keeping good records, submitting accurate returns and responding promptly.

We’re here to support you if you’re unsure about any part of the process or if HMRC has contacted you and you need help navigating your compliance check. Our team of experienced accountants has helped numerous clients through similar situations, and we’re ready to assist with advice, document preparation and professional representation.

While compliance checks may seem daunting, they are manageable with the right preparation and expert guidance. Please don’t hesitate to get in touch with us if you require assistance.

Updated fuel rates impact UK company-car drivers. These rates, which apply to petrol, diesel, LPG, and electric vehicles, are used to reimburse employees for business travel or repay the cost of fuel used for private travel.

HMRC has introduced new advisory fuel rates, effective 1 September 2024, impacting company-car drivers across the UK.

Notably, the rates for petrol engines have been reduced. For engines up to 1,400cc, the rate is now 13p per mile, down from the previous rate of 14p. Engines between 1,401cc and 2,000cc see a rate of 15p per mile, while those over 2,000cc are now at 24p per mile. Diesel engines have also seen reductions, with the rates set at 12p for engines up to 1,600cc, 14p for those between 1,601cc and 2,000cc, and 18p for engines over 2,000cc.

The rates for liquefied petroleum gas (LPG) vehicles remain unchanged, with up to 1,400cc engines at 11p, those between 1,401cc and 2,000cc at 13p, and engines over 2,000cc at 21p per mile.

Electric vehicle owners also face a rate reduction, with the advisory rate now set at 7p per mile. Depending on their primary fuel source, hybrid vehicles continue to be treated as petrol or diesel.

These changes come as the British Vehicle Rental and Leasing Association advises its members and customers to seek the best energy tariffs for home charging to optimise costs. The adjustments to the advisory fuel rates reflect ongoing shifts in fuel and energy costs, as well as vehicle efficiency improvements.

Businesses and employees alike should review these new rates to ensure they are accurately reimbursed for their travel expenses under the new HMRC guidelines.

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Demand rises, but supply keeps growth in check. Buyer demand has surged by 20% compared to the previous year, with new sales agreements rising by nearly 25%.

The average cost of a UK home reached £266,400 in July, reflecting a 1.4% rise over the first seven months of 2024. This equates to an increase of £3,600 since January.

In contrast, 2023 saw a minimal 0.1% rise in the same period. Property website Zoopla projects house prices to be 2.5% higher by the end of 2024.

This growth follows the Bank of England’s recent interest rate cut from 5.25% to 5% in early August—the first reduction since March 2020. However, Zoopla reported that this rate cut has not had a material impact on buyer demand.

Higher interest rates had dampened consumer sentiment earlier, contributing to a drop in buyer demand during summer 2023 as mortgage costs spiked.

Currently, the supply of homes for sale is at a seven-year high, offering buyers more options and helping to keep house price inflation in check for the rest of 2024 and into 2025. Zoopla cautioned that the record levels of supply mean sellers must be mindful of their pricing strategies.

Research found that homes requiring a price reduction take more than twice as long to sell as those without cuts. One in five sellers lowered their asking price by 5% or more in August. Meanwhile, London’s property market saw a slight 0.2% increase, with the average home price remaining significantly higher than the UK average at £536,300.

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Investors brace for capital gains tax increase. This “frenzy” of activity comes as concerns mount that the Labour administration will increase taxes to address a £22 billion shortfall in public finances.

Wealth managers and tax experts say fears of a capital gains tax hike in the upcoming October Budget have triggered a surge in asset sales among business owners, property investors, and shareholders.

In August, Prime Minister Keir Starmer indicated that Labour will likely raise taxes, a move designed to plug the budget deficit. This potential increase in capital gains tax has alarmed asset owners, especially since Labour ruled out raising national insurance, income tax, or VAT in the run-up to July’s general election.

Capital gains on assets such as businesses, second homes, and shares are taxed at rates ranging from 10 to 28%, significantly lower than income tax rates between 20 and 45%.

Advisers report that clients are selling assets to external buyers and exploring alternative strategies, such as selling into family trusts or gifting assets to younger generations.

Those concerned about potential changes to the inheritance tax system, including the possibility of a cap or the elimination of certain tax reliefs, are also considering these measures. This pre-emptive activity highlights the growing uncertainty among UK investors as the October Budget approaches.

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The Chartered Institute of Taxation (CIOT) has emphasised the importance of accurate and up-to-date tax reporting for all crypto-asset owners.

Crypto investors in the UK are urged to review their tax obligations as HMRC begins issuing “nudge letters” to those it suspects may have underpaid tax on their crypto gains.

Gary Ashford, chair of CIOT’s Crypto Assets Working Group, highlighted that many investors might not realise that profits from crypto assets are subject to income tax or capital gains tax (CGT), similar to other assets. He advised that even those who do not receive a letter should review their crypto activity and ensure they meet their tax obligations.

Ashford also pointed out tax liabilities could arise even if investments appear unprofitable. Actions such as selling, lending, “staking” crypto assets, or transferring them between portfolios can trigger a taxable event. He warned that these disposals are taxable within the relevant tax year, regardless of whether the overall portfolio shows a loss after the year ends.

Furthermore, from April 2024, the CGT reporting threshold for those outside self assessment has been reduced to £3,000, down from £6,000 and significantly lower than the £12,300 limit before April 2023. As a result, more individuals may find themselves subject to CGT reporting and payments without realising it. Those with taxable gains exceeding this threshold, including from crypto assets, must report them to HMRC and pay any tax due or face potential interest and penalties.

Although HMRC has introduced measures to assist taxpayers, such as a dedicated section for reporting crypto disposals in the 2024/25 tax returns and a disclosure service for previous years’ disposals, the CIOT is calling for further efforts to raise awareness of these obligations.

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How your structure affects tax and liability.

Choosing the appropriate structure for your business is one of the first and most important decisions you will make. It affects everything from your tax obligations to the level of personal liability you will face, and even how you can raise funds. If you are thinking of starting a business, or restructuring an existing business, it is worth taking a closer look at the options available to ensure you make the best choice for your business.

Key considerations when choosing your structure

When choosing the right structure for your business, there are several key factors to consider.

1. Tax implications: Different structures come with different tax obligations. Sole traders and partnerships are taxed on their income, while limited companies pay corporation tax and may benefit from lower personal tax rates on dividends.
2. Personal liability: One of the main advantages of a limited company or limited liability partnership (LLP) is the protection of personal assets. If personal financial exposure is a concern, these structures may be more appropriate.
3. Compliance and administration: Limited companies and LLPs require more administrative work, including filing annual accounts and tax returns, which in turn results in additional costs. Sole traders and partnerships, on the other hand, have fewer regulatory requirements.
4. Investment and growth: Some structures make it easier to raise capital or attract investors. For example, limited companies can issue shares, whereas sole traders and partnerships may struggle to attract outside investment.
5. Tax flexibility: One advantage of a limited company is the ability to retain profits within the business without needing to withdraw them as dividends. This can allow you to defer tax liabilities, whereas sole traders and partners are taxed on the entirety of their profits in the year they are earned. This flexibility can be useful for managing cashflow and planning for future growth.
6. Perception and credibility: Operating as a limited company can enhance your business’s credibility. Many clients and potential partners view a limited company as more official and established compared to a sole trader, which can help build trust and attract larger contracts or partnerships.
7. Long-term goals: Consider the future direction of your business. While starting as a sole trader or partnership may be simpler, switching to a limited company down the line could bring added tax benefits and protections.

Understanding your options

There are several business structures available in the UK, each with its own set of advantages and drawbacks. These include sole traders, partnerships, limited liability partnerships (LLPs) limited companies, and community-interest companies (CICs). The choice you make should be based on your business’s size, industry, long-term goals and the personal preferences of those involved. Let’s examine each structure more closely.

Sole trader

The simplest and most common business structure in the UK is the sole trader. As a sole trader, you are the sole owner and responsible for all aspects of the business, including its debts and liabilities. While this offers great flexibility, it also means that your personal assets are at risk if the business faces financial difficulties.

From a tax perspective, as a sole trader, you will pay income tax on your business profits through the self-assessment system. National Insurance contributions (NICs) are also applicable, though for the 2024/25 tax year, Class 2 NICs have been scrapped and are now only payable on a voluntary basis. You will still pay Class 4 NICs on profits between £12,570 and £50,270 at 6%, with a 2% rate on profits above £50,270.

Many individuals choose this route because it is easy to set up and manage. However, as the business grows, it may be worth considering whether a more structured approach, such as forming a limited company, could offer better tax efficiencies and protection.

Partnership

A partnership is similar to being a sole trader but involves two or more people sharing responsibility for the business. Each partner shares the profits, as well as the risks, liabilities and losses. Like sole traders, partners are personally liable for any debts the business cannot cover.

From a tax perspective, partnerships also fall under the self-assessment system, with each partner paying income tax and NICs on their share of the profits. For the 2024/25 tax year, the same NIC thresholds and rates apply as for sole traders. There are likely to be slightly more administrative burdens when compared to acting as a sole trader as you’ll want to draft a partnership agreement, as well as have partnership accounts prepared each year.

One of the main advantages of a partnership is the pooling of resources and expertise. However, the lack of personal liability protection can make it a risky option for those involved, especially in sectors with higher levels of financial exposure.

Limited liability partnership (LLP)

For those who want the benefits of a partnership but with added protection, a limited liability partnership (LLP) may be a better fit. In an LLP, each partner’s liability is limited to the amount they have invested in the business. This can be particularly useful for professional services businesses, such as law firms and accountancy practices.

LLPs are taxed similarly to partnerships, with each partner paying income tax and NICs through self assessment on their share of the profits. However, as LLPs are legally separate entities, the business itself must comply with certain administrative requirements, such as filing annual accounts and a confirmation statement with Companies House.

An LLP provides a flexible structure with the added benefit of limiting personal financial exposure, but the increased administrative burden may not be suitable for every business.

Limited company

A limited company is a separate legal entity from its owners (shareholders) and directors. This means that, unlike sole traders and partners, the personal assets of the shareholders and directors are protected if the company faces financial difficulties. However, the increased protection comes with greater responsibility in terms of compliance and administration.

Limited companies in the UK pay corporation tax on their profits. For the 2024/25 tax year, the main rate of corporation tax is 25% for companies with profits over £250,000. Companies with profits between £50,000 and £250,000 will pay a tapered rate between 19% and 25%, while those with profits under £50,000 will continue to pay 19%.

Shareholders may also be liable to pay tax on dividends. The dividend allowance for the 2024/25 tax year is £500, with dividends above this threshold taxed at rates of 8.75%, 33.75% and 39.35% depending on your income tax band.

For many businesses, the tax efficiencies offered by a limited company structure outweigh the increased administrative responsibilities. However, it’s important to understand the implications for cashflow and the additional legal requirements that come with running a company.

Community-interest company (CIC)

A community-interest company (CIC) is a type of limited company designed specifically for social enterprises. CICs must work for the benefit of the community and are subject to additional regulations that ensure their profits are used to achieve their social objectives.

CICs can either be limited by shares or by guarantee, and they must submit an annual community interest report to demonstrate how they are benefiting the community. While CICs do not receive any special tax treatment, they may be eligible for certain grants or other forms of funding that are not available to other types of businesses.

For those looking to balance running a business with making a positive impact, a CIC may be the most suitable option. However, the additional regulatory requirements should be carefully considered before proceeding.

Legal and regulatory requirements

When choosing a business structure, it’s important to understand the legal and regulatory obligations associated with each option. These requirements vary depending on the structure you select and may involve everything from initial registration to ongoing compliance.

Sole traders are the simplest structure in terms of legal obligations. If you operate as a sole trader, you must register with HMRC for self assessment and ensure you submit your tax return each year. There’s no requirement to file annual accounts or register with Companies House. However, sole traders are still required to keep accurate records of their income and expenses.

Partnerships share similar obligations to sole traders but with the added responsibility of registering the partnership with HMRC. Each partner is responsible for paying tax on their share of the profits, and accurate records must be kept for both individual partners and the partnership as a whole.

For limited liability partnerships (LLPs), the regulatory requirements increase. In addition to each partner submitting their own self assessment tax return, the LLP itself must file a partnership tax return (SA800) with HMRC, detailing the business’s income and how it is divided among the partners. LLPs must also register with Companies House, submit annual accounts, and file a confirmation statement each year.

Limited companies face the most stringent legal requirements. They must register with Companies House, appoint directors, file annual accounts and submit a confirmation statement. Additionally, limited companies must register for corporation tax with HMRC and file a corporation tax return each year. Directors have a legal responsibility to act in the best interests of the company and comply with company law, including maintaining accurate statutory records and minutes of key decisions.

Failing to meet these legal and regulatory requirements can result in penalties, fines and even the risk of being struck off the Companies House register. Therefore, it’s essential to stay on top of your obligations, regardless of the structure you choose.

Come to us for further advice

The decision about which business structure to choose is not one to take lightly. Each structure comes with its own set of benefits and responsibilities, and the right choice for you will depend on your specific circumstances, goals and plans for the future.

We are here to help you make the best decision for your business. Whether you’re just starting out or considering restructuring an existing business, we can offer tailored advice based on your needs.

Contact us today to discuss how we can support your business in making the right choice for the future.