The existing business
Part 2 of 4
This is the Finance Act 2023 version of this article. It is relevant for candidates sitting the ATX-UK exam in the period 1 June 2024 to 31 March 2025. Candidates sitting ATX-UK after 31 March 2025 should refer to the Finance Act 2024 version of this article (to be published on the ACCA website in 2025).
In the first part of this article we looked at some fundamental issues relating to unincorporated businesses.
The remaining parts of this article compare the total tax paid on the profits of a business depending on the business vehicle used and the cessation of a business.
Total tax – comparison with company
The total tax paid on the profits generated by a business will depend on whether the business is unincorporated or is owned by a company. This is a significant issue and will be considered, together with legal and commercial issues, when deciding on a business vehicle prior to commencing to trade and also when considering the desirability of transferring an existing unincorporated business to a company.
The calculations necessary to compare the alternative business structures must be performed with care if they are to be accurate. They require a sound knowledge of income tax, national insurance and corporation tax.
Illustration 1
Sammy’s business has an annual tax adjusted profit of £52,000. This figure is prior to any payments being made to Sammy. Sammy is considering three strategies: Strategy A, where the business is unincorporated, and Strategies B and C, where the business is incorporated.
Under Strategy A, where the business is unincorporated, the net income available to Sammy for the year ended 31 March 2024 is calculated as follows.