TP writes: My business partner and I operate a traditional partnership but a lot of our profits are reinvested. We have noticed our personal tax liabilities are rising but we are not taking out anywhere near that level of income. Is there any way to defer our income tax to recognise the reinvestment?
Two partners get some tax advice from the business doctors this week.
To align your tax liabilities to the income you take, you could incorporate the partnership by transferring the trade and assets into a new limited company, writes Jamie Sherman, partner at Kingston Smith LLP. You could claim incorporation relief, so there would be no capital gains tax on the deemed sale of the business to the company.
Income tax and national insurance contributions are currently being paid at rates of up to 47% on profits generated by the partnership, regardless of what you withdraw. Through a limited company, corporation tax would be paid on profits generated while income tax would be paid only on any amounts withdrawn by you as salaries or dividends. Corporation tax is now 20% but will fall to 19% in and drop to April 17% by 2020.
Another advantage of trading through a company is limited liability status. This offers greater protection in the event of any claim against the business.
When incorporating, there are additional administrative tasks such as the requirement to file annual accounts with Companies House. There are also practical implications, such as setting up a company bank account, updating your business name and informing customers and suppliers.
Can we cut down on cigarette breaks?
TS writes: One of my employees goes for numerous cigarette breaks, which eats into their working hours. How many cigarette breaks are workers entitled to?
The law does not specify a right to smoking breaks; instead all workers can take a minimum 20-minute break when working for six hours or more, writes Peter Done, managing director of Peninsula. Employees can use this break, which must be during working hours and not at the start or end of the day, for whatever purpose they choose.
While the law requires only a minimum rest period, employers can offer extra breaks — but these will usually be included as a contractual right for all members of staff. Taking numerous breaks will, in effect, reduce this employee’s working time, while others are working their full hours. This could lead to grievances. The lost time will also reduce the employee’s productivity and could have an impact on team performance as the minutes lost each day add up over a longer period.
Where taking extra breaks is leading to issues with working hours, employers should act. First, they need to clarify whether the employee’s contract allows numerous or unlimited breaks. This may not be expressly included but it may be arguable, where the breaks have not been addressed, that the term has become implied in the worker’s contract and they will expect the breaks as a contractual right.
Employers should speak to the employee. Addressing the matter early may be sufficient for the employee to realise they are breaking the rules on breaks and stop them taking this time off. If the matter has been left for a longer period, potentially making the additional breaks a contractual term, the employee will have to agree to stop taking the time out. An incentive may have to be offered to secure agreement, such as having one additional smoking break at a set time during the working day.
Care should be taken to ensure any additional rights given to the employee to cut down their smoking breaks do not have a negative impact on other employees.
Kingston Smith LLP, the chartered accountant, and Peninsula, the employment law firm, can advise owner-managers on their problems. Send your questions to Business Doctor, The Sunday Times, 1 London Bridge Street, London SE1 9GF. Advice is given without legal responsibility.