Choosing the business vehicle

By Tolley
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The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Choosing the business vehicle
  • Who is starting in business?
  • What are the intentions of the business?
  • What external influences (other than tax planning) may impact on the choice of business vehicle?
  • Sole trades and partnerships
  • Companies

When someone decides to start in business, consideration should be given as to the most suitable type of entity for the business. This decision will depend on legal, commercial and administrative factors, as well as taxation.

When advising on which type of business vehicle to choose, asking the prospective proprietor the following questions may help.

See Checklist ― choosing the business vehicle and Summary ― trading vehicle comparison.

Who is starting in business?
One person alone

An unincorporated business or limited company may be suitable.

Consider the impact of the personal service company rules if the individual intends to operate through a limited company.

For guidance on this, see the Introduction to personal service companies guidance note, and other notes in the Personal service companies sub-topic.

A group of people who are not related

A limited company, partnership or LLP may be suitable, depending on the other relevant factors.

Family members / spouses

A limited company, partnership or LLP may be suitable, depending on the other relevant factors.

There are additional considerations when employing spouses or children and the application of the settlements legislation should be considered. For guidance on this, see the Employing the children and Husband and wife / civil partners guidance notes.

What are the intentions of the business?
Lifestyle business ― aiming for profits sufficient to fund a good standard of living until retirement

If profits are forecast from early on, then particular consideration should be given to taxation of profits, NICs, net income required by proprietor and timing of payment of tax.

If losses are anticipated early on then more flexible loss relief for unincorporated businesses may be more important.

Hobby business ― alongside employment

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