Page 306 - DCOM301_INCOME_TAX_LAWS_I

Unit 10: Tax Planning for Different Organisations

Self Assessment Notes

State whether the following statements are true or false:
13. It is the shareholders in the company directors who in turn will appoint managers for the
day to day running of the business.

14. Maximising the tax liability can provide more funds for the company and it can especially
be useful in case of small businesses in need of more money than established firms or
organizations for expansion of their activities.
15. A retirement plan is a tax advantage to a person who is self-employed.
16. A company owner needs to be aware of anything that might impact taxes paid.

Case Study A Self-employed IT Consultant

pes Wealth Trust met with Brian, a 41 year old self-employed IT Consultant
earning 140,000 per annum. Brian is married to Emma and they have two children
Oaged 7 and 4. They have a mortgage-free home. They have no Will in place. Opes
Wealth Trust began the ‘Financial Solutions Service’ by firstly carrying out a detailed
fact-finding exercise with Brian and Emma, followed by a comprehensive financial planning
exercise.
We have detailed below some of the specific findings.

1. We have helped Brian and Emma identify their financial objectives and the level of
lifestyle income they desire at their desired target date (when Brian is aged 60).
2. We outlined the capital fund required to meet this target.

3. We assessed their progress against this target based on their current asset base and
the existing regular level of pension funding and savings/investing.
4. We outlined the additional regular funding that would be required to reach their
financial target.
5. We outlined tax-efficient planning tools and how such structures can greatly enhance
real returns.
We provided a detailed analysis of their investments and detailed the annual investment
returns that would need to be achieved to reach their financial goals. We also provided an
analysis of their stated tolerance to investment risk versus where their current assets
actually are at present relative to this. We outlined the relevance of this to them, and the
relationship between investment risk and reward.
Choosing the Right Business Structure
We outlined the drawbacks to operating as a sole trader and provided a comprehensive
outline of the benefits to Brian of incorporating his business and operating as a company
going forward.

Once we had quantified their monthly lifestyle income, which was 3,500 net per month,
we showed Brian the advantages of the corporate structure in reducing his effective tax
rate.
Contd...

LOVELY PROFESSIONAL UNIVERSITY 301