TAXATION

Advanced Taxation - Brown's Business

Advanced Taxation - John and Peter Brown

Introduction

The paper aims at assessing available business structure options in order to advise Brown's Business. In accords with instructions, the paper evaluates impact of taxation under partnership and limited company options. Moreover, the paper calculates total income tax, corporate tax and national insurance payable under each option in order to suggest suitable business structure for Brown's Business. In addition to this, the paper provides brief explanation of IR35 legislation in order to advise the client regarding business application of IR35. Finally, the paper provides conclusion on the overall analysis of taxation aspects of partnership and limited company.

Taxation in Partnership vs. Limited Company

John, Peter Brown and Jennifer are placed with two options to structure their newly started business of computer equipments and providing technical assistance to other local companies. Each of the two business structures will provide certain advantages and limitations to the firm from taxation and other business perspectives. Hence, a comparative study of available two options is conducted in order to assist the firm in their final decision of structuring the business.

Advantages and Disadvantages of Taxation in Partnership

Partnership is a form of business in which two or more individuals enter into a formal partnership relation in an attempt to pursuit common goals. In a partnership business, two entities could equally be active contributor to business activities or they might form a partnership with sleeping and active partner. In such case sleeping partner will invest money only; whereas, the active partner will put in professional skills, knowledge and expertise. However, Brown's Business will be an active partnership business due to capital and intellectual investment of all the three partners (Alliotts, n.d., p. 2).

Advantages

If John and Peter Brown engage in general partnership business, it will provide various benefits to the firm. All the three partners will provide seed capital in order to create partnership business, for instance, John and Peter will provide capital of £ 50, 000 each and Jennifer will invest £ 25, 000 in the business. Hence, it will create opportunities for potential growth and business profits. In addition to this, partnership business will create shared responsibilities for all three partners and it will result in better decision making (Alliotts, n.d., p. 2). For example, partnership business is easy to form and manage with little restrictions and regulatory obligations. Therefore, partnership will add flexibility to business procedures. Contrary to limited company, Brown's Business will pay single income tax on business profit and the net profit will be distributed among the three partners on the basis of agreed sharing ratio.

Disadvantages

In case of partnership, Brown's Business partners will be exposed to unlimited liability. For example, all personal and business assets will be liquidated in order to pay off business obligations. Another disadvantage of partnership is the legal requirement to pay tax likewise sole traders. In accord with taxation laws, partners will be obliged to submit self-assessment tax return on annual basis. In addition to this, partners will be liable to register ...