NEW chancellor Philip Hammond, now charged with the economic ramifications of leaving the EU, told everyone after the recent G20 summit in China that the “Brexit blueprint would reassure businesses and markets”.
Not much meat on the bones as of yet and a comment that the blueprint will come later in the year. International deals including Europe could be ones to suffer for businesses. Law firm Baker McKenzie has estimated it could be as much as one trillion dollars if there is not a blueprint that is clear. So Mr Hammond will have to make sure his blueprint is clear and timely!
With pressures increasing globally, in the European Union and in the UK at the minute the business environment has another layer of complication.
Why do 90 per cent of businesses not trade for more than 10 years? Is success a bit of luck and can weaknesses or barriers to entry or longevity be overcome?
Ninety per cent or only one in 10 make it over the 10-year mark. That’s all businesses, so that includes start-ups, micro, small businesses and shockingly about 70 per cent of vat registered businesses.
There are many reasons why this is and just having a good idea or a skill in something will sadly not see you through. Who has ever used a Spangler? Most of us have, but we commonly call it the Hoover.
James Spangler invented the portable vacuum cleaner to abate his asthma symptoms but William Hoover bought the patent innovated and marketed it. We still call it the Hoover today unless you have a Dyson!
Spangler had a great idea, a skill and a market but it was someone else who had the business acumen to bring it to that market and it’s still bought over 100 years later.
We have worked for the last two decades with businesses to help and improve the competency of working on the business not in it. An independent financial adviser is often not the first thought an established or start-up business thinks of but they can help advise throughout your journey personally and as a business.
How to use your finances is a powerful tool in order to plan, manage and grow your business. This is just one of the areas that you need good advice or competency in to be the one in ten.
When starting a business there are a massive amount of choices facing you. Perhaps one of the first is what is our legal personality? Will it be sole trader, a partnership, a limited liability partnership (LLP), incorporated limited company (Ltd) or a charitable trust? Remember to seek good advice from your accountant and solicitor.
Each has various tax, commercial advantages and disadvantages; limited liability is often the major factor in a decision to incorporate, but don’t make this decision lightly. It is perhaps more complicated and costly to undo the incorporation and change your legal status than to incorporate.
Limited companies have a few layers of taxation to consider. As a sole trader or partnership your profits are taxed when you take company profits and they are treated as income and taxed at your marginal rate of income tax.
In a company salaries are subject to income tax and national insurance and profits to corporation tax. In the 2015/16 tax year the rate has been changed so everyone pays 20 per cent on their company profits. It used to be 23 per cent for companies who generated more than £300,000 pounds then it changed to 21 per cent and now it is the same for larger profitable companies as it is for smaller profitable companies.
There are a number of reliefs available such as research and development, patent box and creative industries tax relief. Capital allowances are available on plant/equipment, machinery and vehicles.
Remember, such items like entertaining must be added back to profits and are taxed. Also benefits that you or employees get personal use from are classed as benefits in kind and therefore subject to taxation and paid by the one who has the use or benefit.
It can be appropriate to own land or buildings yourself and let the company use them. Often clients hold such assets in their pension and rent them to their companies at a commercial rate. Always be advised on such things like this there are complex rules and pitfalls if you don’t get it right.
The manner in which you form your legal personality depends on your goals and objectives for the short term and the future. Not just your business goals and objectives but also your personnel ones as well. If you want to attract investment or continuity for you and your employees when you sell or step away from the business you have been running, then these are important decisions.
:: For a free, no obligation initial chat about your individual finances, call Darren McKeever on 0800 0112825, e-mail info@wwfp.net or take a look at our website www.wwfp.net.
