Question

Corporation Tax v Individual Income Tax

Scenario

Mr. Mat lives in Barbados and is desirous of starting his own business from inheritances that his parents left him. He approached you for advice on the best type of business to register. Mr. Mat said he would love to gain benefits from any tax relief that is available that the government has to offer.

You are required to advise Mr. Mat whether it would be more beneficial to start a Company or an Individual Trading Business.

In your answer you should outline for Mr. Mat why setting up either a company, or a trading as business is more advantageous over the other. You are to cover matters like:

a. Tax rates

b. Available tax reliefs and or tax credits

c. Ease of operations of a company, as well as ease of operations of an individual trading business

Answer 1

Advantage of individual trading business-

Mr. Mat should go for individual trading business as there is less risk in individual trading business, it can be set up easily and wound up easily. It needs less capital, resources, furniture, office space to set up the individual trading business. Mr. Mat does not have to pay additional tax on sole proprietorship as it does not have separate legal entity. Mr. Mat has to pay the personal incomes tax based on the tax slabs. Owner of the business only has to pay tax on the profits from sole trading business. If business is going into loss, it can be easily changed or shut down.

Disadvantage of Company- If Mr. Mat opens a company, it needs more funding. A company needs more employees and partners, it needs a big building and a office space that cannot be done individually. Corporate tax rate is 21% that is separate from the personal income tax. Social security rate for companies is 6.20%. Once a company is set up and it is going in the loss, it is difficult to wind up it easily.