Year End Tax Review 2007 Contents A word to the wise Employee pensions A matter of trust Pension policies Family tax planning Mr and Mrs Inheritance tax Employee cars and fuel Borrowings and tax Tax-free perks Two jobs = too much NIC? Give generously and save tax Children's savings? Company or trade? Capital gains Business tax Investment limits Should VAT be flat?

Company or trade? Since Gordon Brown increased NIC significantly in 2003, people have been trying to reduce the impact. One way open to sole traders and partnerships is to form a company and pay out dividends instead of salary - dividends are still not subject to NIC. This is a complex decision, which should not be taken on tax grounds alone - many other factors have to be taken into account. In 2002, the rate of corporation tax on the first £10,000 of company profits was set at 0%, which was another reason to incorporate. This was so favourable that Mr Brown had to introduce a new and complicated rate of 19% on small company profits paid out as dividends in 2004. From 6 April 2006 - to "simplify corporation tax" - he put the rate on all small company profits back to 19%, which is where it was before he complicated it in 2002 and 2004. Although this has increased the CT charge for companies with very small profits, it makes little difference to profits above £30,000 and none to profits over £50,000. The numbers still favour companies over sole trades and partnerships. Action Point! Have you considered incorporating your business?