Different Types Of Business

What is a Sole Trader?

A Sole Trader is anybody who works on their own. It doesn't matter what they do, as long as they haven't turned themselves into a company, and as long as they are not working with somebody else. If they are literally on their own, then they are a Sole Trader. Say, if you run a shop, a florist, a plumbing services and there is no one else involved, then you're a Sole Trader.

What tax do I need to pay as a Sole Trader?

The tax that you need to pay as a sole trader is exactly the same as the tax that you pay as a normal individual. If you work for a company, they will deduct the tax at source - other bits and pieces that you acquire in the meanwhile are your concern to sort out with the tax man. For the sole trader, your tax remains exactly the same, depending on how much you earn. So if you are in a 25% bracket, that is what you are, and if you are in a 40% bracket, then that is what you are.

What is a Limited Company?

A Limited Company is a trading body that has been registered at a company's house. It could be thousands and thousands of employees, or it could be just you. If it's just you, then you immediately make yourself subject to all the laws that apply to all of the big corporations as well. That means you've got to file your report and accounts every year, pay all your taxes, and as it were, treat yourself as an employee of your own company.

What tax do I need to pay as a Limited Company?

Limited Companies are subject to Corporation tax, and that is typically 20 percent, depending on how many costs you are able to deduct. As a sole trader or a Limited Company, you have a choice - you can either pay PAYE as you go along, as though you are an employee of the company, or you can wait until the end of the year, see how much profit you make, and take a portion of that or the whole lot, and you'll be subject to normal income tax on that as well.

What is a Partnership?

A Partnership is any agreement drawn up that is legally binding between you and one other or several other people, presumably people whose skills you think are going to help you run a better business.

What tax do I need to pay as a Partnership?

Taxation in partnerships is quite complicated. The most common type is where the partners are able to remain self-employed as individuals in their own right. In other words, they are not lumping all of their fortunes together and then being taxed as one. Instead, they are keeping a wall between their personal tax and that of their next partner along.

What is a Limited Liability Partnership?

A Limited Liability Partnership, or LLP, is something that's been fairly recently set up in response to partners who are upset by the fact that they are hugely effected by the adverse circumstances of the people that they've gone into business with. If you're doing particularly well as a partner, but your other partners aren't, then it isn't very reasonable to be dragged down because of them, when you are in fact doing well. Typically, where this gets particularly acute, is if, for example, you're doing very well but the others aren't; the business or partnership goes into liquidation; and suddenly your house can be repossessed - when in fact you were thriving quite well. The LLP draws up an agreement in advance, which is legally binding, which protects the individual partners from the others going down, and keeps them from essentially getting bankrupt.

What tax do I need to pay as a Limited Liability Partnership?

If you're in a limited liability partnership, your tax position should be the same as if you were a sole creator. It does vary slightly, however, depending on what the partnership agreement is. It is possible to have one that lumps it all in together, but more likely, the partners will want to remain tax-separate.

What is a Franchise?

A franchise is where you wish to piggy back your business on the success of somebody elses. For example, if Kentucky Fried Chicken had a series of successful outlets all over the place, and you wished to run one of them, then essentially you would pay a levy to them for the privilege of running it. You then run your business in the normal way, but of course you have paid them for their name.

What tax do I need to pay as a Franchise?

Your tax status as a Franchisee will depend on the nature of the agreement from the holding company. You could be rather like an employee, and therefore subject to standard taxation, as people would understand it if they work for a company. Or they may say that the franchise is a separate business, which simply pays an annual fee to the holding company, in which case, you would essentially be running your own business. It is a question of whether you declared yourself to be a sole trader or a company in your own right.

What is a registered charity?

A registered charity has to prove that the nature of what they do all day is indeed charitable. Although that sounds straightforward, there are a lot of areas where that is marginal, and you can imagine people helping people in the community, or helping pets or whatever, where they might wish to have charitable status - but not all are granted it. The important thing is that the authorities can prove that a suitable amount of what they do is indeed charitable, and that the money that is spent is not spent on what you might call commercial or personal activities.

What tax do i need to pay as a registered charity?

Charity taxation is part of the reason why people want to get charitable status, because in theory they should be exempt from it. The part that needs to be looked at carefully is how much of the money that is made (which might be a surplus, or what normal companies would call a profit) is then redeployed into the charitable works, and that is what charitable status insists must happen.