Tax Tips For Entrepreneurs – 7. Keep All Business Profits For Yourself
usiness. By contrast, profits made by a partnership are shared between the partners in accordance with the profit sharing ratio. Any profits made by a limited company belong to the company and can be paid out to the directors/shareholders in the form of a salary, bonus or dividend (as appropriate) or retained in the company.
A sole trader is uniquely placed to enjoy all the benefits of his or her business success.
Lucy is in business as a sole trader. She has a successful year and makes a profit of £100,000, which is treated solely as her income.
Her sisters, Katie and Emily, are in partnership, sharing profits equally. The partnership also makes a profit of £100,000. This is due mainly to a contract negotiated by Emily. However, the profits must be shared in accordance with the profit sharing ratio and Katie and Emily each have profits of £50,000.
In each case the profits are taxed as the income of the individual concerned.