Completely lost choosing a business structure and tax/contribution payments, please help.

Tommygunn

Hi,

I am currently writing a business plan and I've come to the financial section. I've searched the internet for calculators but I can't find anything fully comprehensive, in other words a simple calculator where you can enter business type, amount of people, income, outgoings, NI contributions etc etc, so that I can see, after all is said and done, what actually ends up in my bank account.

Does anyone know of such a calculator?

If not, or if your can just help me out, here are the basic details.

1) Two equal partners; 50/50 down the line, money, experience etc.

2) What type of structure? Partnership, Ltd company or other?

3) Up to, and likely over, £150,000 in yearly earnings.

4) What are the tax rates, NI amounts etc for different structures?

5) What is the order of deductions from, for example, £150,000?

6) How do our expenses impact the calculation; consumables(weekly), public liablility insurance(yearly), accountant?(yearly) etc? Tax reclaim on expenses?

What is the cheapest and most profitable option?

If you can provide me with some good info I'd really appreciate it so I can get a solid appreciation of the ingoings and outgoings.

Many thanks,

Tom.

Pennywise

You really are asking far too much on an internet forum.  There are several different taxes in play, i.e. payroll taxes, VAT, national insurance, income tax/corporation tax.  Some are on wages, some on turnover, some on profits.  It's a bit worrying that you are trying to do a business plan without even knowing whether you're going to trade as a limited company or a partnership - that's pretty fundamental and needs to be addressed before you start writing a business plan.  I'd say the best you can do is the numbers you actually know about, i.e. sales, gross wages, overheads, etc., to give you a starting point and then engage an accountant or business development specialist to explore the next stages.  You will spend huge amounts of time, tie yourself in knots and probably get loads of things wrong if you try to do it yourself without a good knowledge of the taxes and how they interact.

tacpot12

I tend to agree with Pennywise that it will be simpler to build your financial plan if you try to do so with one business structure in mind. This link contains some useful information to help you decide which structure you are comfortable with: Partnership vs a Limited Company: Which Is Best for You? | Bonnetts Lawyers  

I think this decision is a good example of not letting the tax "tail" wag the dog - the link makes the point that as a partner you are liable for all the debts of the partnership. If you are a director of the company, your liability is extremely limited. You haven't said what the nature of the business is, but it is one where there could a significant liability on the partners, you should consider a Limited Liability Partnership or a Limited Company as the better structure.  You should be thinking more about the risk to yourself and your family, and less about trying to save a bit of tax.

I would definitely talk over the decision with an accountant - it will give you a good idea as to how useful they might be if you were to hire them as the accountant for the business. 

I think the reason you haven't been able to find a good 'calculator' to show you the difference is that there is a lot of flexibility in both structures, so no calculator can give an answer that Ltd. is better than Partnership or vice versa as it depends on a range of decisions. In practice, some years it might be better to be partnership and in others, a Ltd. company, but you don't get that choice!  It will help your accountant advise you if you can describe the nature of the business, and its requirements for capital and cash flow, and each partner's requirements for income and pension provision. With this information, the accountant might be able to suggest the best structure.

When developing a business model, tax efficiency shouldn't be a primary concern. Rather, the tax you pay is something that is calculated once you know what your profit will be.

To develop your business plan, I think you can start with your income of £150,000. 
From this you need to subtract the essentials: 

• The salary that you and your partner need to take home
• The pension contributions that you and your partner want or would insist upon as a minimum (5% of salary might be a starting point)
• Insurances
• Vehicles (lease payments & other running costs) 
• Loans Repayments (if the business needs capital)
• Accountant Fees
• Legal Fees (if you need bespoke contracts)
• Salaries/Services costs (for staff/receptionist services) 
• anything else that is essential to the business (e.g. rent for premises)

Subtract these costs from the income and you have a figure for the maximum profit that business might make. You can deduct the tax from this to give you the most that the partners might take home, but the partners could decide to incur additional expenses within the business such as paying themselves a higher salary, or investing to develop the business. This will tend to reduce the tax that the business will pay, but might increase your personal tax.

Once you know what profit you might make, you can decide how best to spend this profit to implement your business plan. And that really is the purpose of the business plan -  to look forward to what investment is needed and to see how quickly the business can create the money that it needs. If it can't create it all in year 1, some of the plan will have to wait until year 2. If year 1 turns out to be a run away success, your plan will tell you what you are going to spend the money on. 

Hope this helps.