Monthly Archives: February 2013
If you’re thinking about starting up a business and don’t know which legal set-up to undertake, then there are a number of important factors to consider. Unless you’re absolutely sure of what you’re doing, then a variety of complications could hinder your business depending on whether you’ve registered yourself correctly. Let’s take a look at some of the benefits of setting up your business as a limited company or as a sole trader.
Sole Trader Benefits
Many business begin life by losing money, and it can a while before any profit is recorded. As a sole trader, you are able to offset your trading losses against any previous employment income, if you leave a high-paid job to become self-employed. Furthermore, losses can also be offset against alternative sources of income too, including dividends, renal income or savings interest. In comparison, the losses of limited companies cannot be offset against personal income.
Sole traders also pay a lower percentage of capital gains tax. If you’ve created a business that you’re looking to predominantly invest into, with little or low regular income but a hefty return when you sell in the future, then you will pay a lot less tax. In comparison, if the assets are held in a limited company, you will be subjected to a significantly higher tax rate.
Furthermore, limited companies have to submit annual statutory accounts and have to comply with the Companies Act. The fees to process these payments can be quite expensive, however sole traders would not have to comply with any of these regulations.
There’s also minimal hassle if you decide to give up on your business as a sole trader – you simply stop trading and inform the necessary HMRC departments. As a limited company however, you would have to undergo HMRC investigation and you’ll probably get struck off.
Finally, as a sole trader, the information you provide the HMRC will only be seen by the HMRC. In comparison, limited companies are required to file accounts with Companies House, files that the public can access. Even if you’re a small limited company, there is still a public record of your business and trading finances.
Limited Company Benefits
Setting yourself up as a limited company also has its benefits. Limited companies are subjected to corporation tax, which is typically at a lower rate than personal sole trader income tax rates. Therefore, if you own a limited company and you have no need to withdraw any of the profits from the business accounts, then the set-up of the business is certainly superior to that of a sole trader. However, when it comes to withdrawing funds from a limited company, these funds may be taxed.
Furthermore, as a limited company, your business and personal funds are kept completely separate, meaning that if your business goes under, you or your personal finances won’t be held responsible. For example, if your limited company cannot afford to pay all its debts, then you will not be liable for those debts. Additionally, setting yourself up as a limited company provides an extra sense of credibility for other people looking to invest.
If you would like more information on financial assistance and advice, visit Brookson to look online for contractor accountants.
I am a big fan of Todd Tresidder at Financial Mentor, so I was excited to review one of his 60 Minute Financial Solutions books. How Much Money Do I Need to Retire? helps you accurately analyze all of the conventional assumptions in retirement planning in order to understand why they can be extremely misleading. This helped me a lot. I’ve always known that the whole “8% annual return” number couldn’t be entirely accurate, but Todd shows exactly why it’s such a dangerous assumption (the short answer is that it’s never a neat 8% return and the volatility of negative returns one year followed by positive returns the next can be devestating on your portfolio.) Next, even small changes in inflation can have dramatic eroding effects on your retirement portfolio. So when searching for that Magic Retirement Number, it helps to realize that actually, there is no magic number. You should calculate for a range that you feel comfortable with, based on different spending, saving, inflation and investment return scenarios. The book is worth your time and I just want to leave you with Todd’s two critical numbers that will help you best plan your retirement:
- #1: Percentage of income saved versus income spent
- #2: Return on investment minus inflation
There is a ton of helpful information and ideas in this book, even if you think you are many years away from retirement (I know I am). I like the Ultimate Retirement Calculator that lets you play with a bunch of variables. I also like that it delves into business and real estate assets as part of a retirement portfolio, since I really don’t think of myself ever retiring, I always want to be active in business, knee-deep in projects, and an owner of rental properties.
Giveaway: I have a copy to giveaway and entry is really, really easy! Either follow me on Twitter or show me some like on Facebook and enter using the Rafflecopter below. You’ll get this awesome book mailed to you!
Curtis is a staff writer for American Debt Project. Please see his first post to learn more about him!
My name is Curtis Howard. Many people are aware of my past, but just as many are not. I’ll put it this way; I can’t pass a criminal background check. I am an original member of the 47th Street Crips in San Diego and I have spent many years in maximum security prisons throughout California as a result of having that street mentality. After many trials and tribulations, I no longer live that life. I now struggle to maintain my place in society. It’s not easy, but it’s worth being alive and free. Amen.
Although prison and society have different rules, I marvel at how much they actually coincide in their practices; one common practice is that of loan-sharking. In prison, loans are called “2- for-1’s”.
The title is self-explanatory. You simply pay back double the amount that you borrow. There are no particular criteria or credit checks involved to qualify. You simply give the lender (a convicted killer) your good word and there you have it! Now that’s easy!
Low and behold, I’ve noticed a similar practice here in my community. They’re called “payday loans”. It only requires that you have an active bank account for at least three months, and direct deposit on your payroll checks. Now that’s easy too! (Out of curiosity I called for further details. The woman who answered said that on a $200.00 loan, I would pay back $235.29. That amount is then deducted from your next pay period check. However, she placed the most emphasis on the fact that my first loan would be free. “You simply pay back the amount you borrow!” she exclaimed. The call ended when she attempted to set an appointment for me to come in with ID and pay stubs. In prison this would be a great deal! But in the free world it’s a serious rip off*).
Their interest rates are not as high as the 2-for-1’s are! But I guess that’s why the 2-for-1’s only require your good word to get. The easier it is to get the loan, the more people will agree to the terms. It’s a quick fix. Where do I sign?
However, at Pelican Bay prison there was a guy killed over a 2-for-1. He was stabbed in the neck and bled out completely, just after EMTs rolled him away on the stretcher. He never reached the infirmary.
I will also have you know that the biggest prison riot that I was ever involved in took place over an unpaid 2-for-1 loan. Since then, every time I witnessed someone getting a 2-for-1, I would picture him being rolled out on a stretcher a few weeks later.
Last month, while cashing my paycheck, I saw a guy over in the payday loan department. He was signing on the dotted line. That loan made his day! He was so happy that he started speaking to me as we walked out the door together. I couldn’t hear him clearly because a distant paramedic was starting to gain ground on us so I just smiled and nodded. And then I started to laugh. The timing of the paramedic coming after him making the loan was all too familiar.
He was puzzled that I suddenly laughed out so hard. He hadn’t said anything THAT funny.
As we parted ways I thought to myself: He doesn’t understand why I’m laughing now, but he will in a few weeks when it’s time to pay that loan back….
*Editor’s Note: It is a serious ripoff– assuming a 10 day repayment window, that $35.29 fee is equivalent to a 644% APR!
If you went to a preppy East Coast school like I did, you know about the “uniform”. The particular $150+ jeans that were in at the moment, the fleece, the flip-flops, the embroidered pants and so on. The “uniform” was foreign to me when I arrived on campus, my first time even visiting anywhere west of Texas in the US, nevermind that this would become my home for the next eight years. I had never heard of The North Face or Rainbows and could not for the life of me understand why the guys insisted on using thin stretchy bands to hold their sunglasses around their necks (later I found out they were called Croakies, which is a terrible name). But being the label-grubber that I
am was, I decided fairly quickly which of these East Coast staples I would adopt (like a wear-everywhere fleece) and which ones I would openly mock (the pants with the little whales on them). I was always an outsider in my college to most people since I came from a public school in California and not Exeter, but I never minded. The people that mattered didn’t mind…you know the rest of the saying. Anyways, it didn’t mean I was a loner or totally immune to the styles preferred on campus. Students on campus dressed overwhelmingly alike: most people were very clean-cut and put together and preferred Polo to Billabong, madras to ripped jeans, muted pastels to choke-on-it 80s neon. Or, the opposite of everything I like. Still, there were some things that I felt like I had to have:
The North Face Denali Fleece
College kids and rappers have to be keeping The North Face in business. After a while, I noticed that 90% of the population had this fleece jacket in one or more colors. Even though I wanted this jacket, I eventually settled on The North Face’s less popular rival: the Patagonia R2 fleece for a cool $150.
The R2 didn’t look quite as cool as the Denali fleece, but for someone who is constantly cold and was new to snow in the winters, it was amazing. I loved this fleece and wore it regularly for years, until I lost it to a hall closet somewhere. In college, especially in a cold climate, a simple fleece like this was a 4-year staple of your wardrobe. Girls would wear women’s The North Face jackets over a party outfit without blinking because the look was totally entrenched in our minds.
The Longchamp Le Pliage bag or Herve Chapelier bag
Once again, the preferred bag of choice for girls on campus was something I had never heard of. This Longchamp Le Pliage bag is a simple nylon tote bag that is $145 and comes in a rainbow of colors. I don’t know about you, but when I notice a brand that some people are wearing, pretty soon it feels like everybody has one and you are left out of a cool club. I never got the appeal of the Longchamp bag but I did spring for another popular tote, which was the Herve Chapelier nylon tote for close to $100. I admit that peer pressure got me to buy this overpriced nylon bag, but I still have mine and use it all the time, from beach trips or as an overnight bag. I bought one for my mom years ago as well and it’s still her everyday gym bag.
One of the last must-haves that I will never forget from my college days were the polos. Polos were everywhere. Even though I went to a top California high school that sent at least a dozen kids to Ivy League schools every year, no one in my high school dressed as formally as my college classmates. High school was tees and jeans, with the more adventurous girls in cuter, summery outfits. College was polos and dress shirts and boat shoes, preferably all Ralph Lauren Polo or Lacoste (and Sperry for the boat shoes). Lacoste polos could easily become a small-time habit if you weren’t careful. The colors available were seemingly endless and each polo was $72.
Cost: $144 for two polos
Total Cost of College Must Haves: $394
Wear It Because You Like It, Not Because Everyone Else Has It
I have so many more items on my must have list, but I’ll stop there for now. I eventually stopped trying to keep with my classmates when it came to shopping and keeping up appearances. I can’t imagine buying much these days more than $30 when it comes to clothing. But in college I thought nothing of buying expensive items. Even though I am amazed at how much I spent on clothes and appearances for trivial things, I know that some items really give you your money’s worth. As in, I definitely could use another Patagonia fleece right about now!
Did you have any must have items in college? Were they expensive or cheap? Would you still wear/use it today?