In addition, formal company meetings, called annual
general meetings, must be held by a company at specified
intervals so that shareholders are kept informed of cor-
porate activities. However, private companies may opt
out of this requirement by what is called an elective
resolution (see further, Chapter 6 ).
In conclusion, therefore, those who run companies
and limited liability partnerships will have to spend some
time in ensuring that the business is carried on in such
a way as to comply with relevant legislation. The sole
trader and ordinary partner have a much less complicated
legal environment, which can be to their advantage. How-
ever, the administrative burden on companies, particu-
larly small companies, may be significantly reduced if
deregulation proceeds.
In this connection, under regulations made under the
Limited Liability Partnerships Act 2000 small LLPs will
automatically qualify for audit exemption in the same
way as companies limited by shares.
Small and medium-sized companies and
international standards
The directors of companies have the option of preparing
Companies Act accounts following the Companies Act
2006 and UK accounting standards or the Companies
Act 2006 and international accounting standards (IAS).
The only exception is charitable companies, which must
follow UK standards.
This option applies also to small and medium-sized
companies. However, it should be noted, if IAS accounts
are produced, that the accounts exemptions available to
small companies to prepare shorter form accounts and
the option for both small and medium-sized companies
to file abbreviated accounts apply only where UK stand-
ards are followed.
Taxation and national insurance
Once a business is running the question of the taxation
and national insurance (NIC) arises. The subject is one
of extreme complexity and so only an outline of the sys-
tem can be given.
Income tax – the system of schedules
In the UK different types of income are taxed under what
are known as Schedules. This dates back to the days
when different departments of HM Revenue & Customs
dealt with the different kinds of income which a wealthy
person might have. Its purpose was to achieve secrecy
as to total income. These days one inspector of taxes
deals with all parts of a taxpayer’s income and the word
‘Schedule’ no longer has any significance. It simply means
a ‘type’ of tax.Income tax – generally
Income tax is the main tax which is paid by people
who have earnings either from an occupation or from
investment income. Employees pay income tax under
Schedule E. They pay weekly or monthly by deduction
from pay. The self-employed pay income tax under
Schedule D and are responsible for making the relevant
payment to the Collector of Taxes. For this reason the
self-employed should keep full and accurate records of
all transactions of the business.Taxation and the self-employed
sole trader
Sole traders should ideally draw up annual accounts,
though it is not necessary to do so. The trader’s annual
tax return (see below) provides space for a return of
business income and expenses in a standard format
which may in some cases be regarded as enough and do
away with the need for annual accounts. However, if
accounts are drawn up, the question of what accounting
date to use will arise. In other words, what is to be the
year end for the relevant financial statements? Accounts
can be made up to the end of the first year’s trading
or to the end of the calendar year, i.e. 31 December, or
to the end of the tax year on 5 April. Where calendar
year or tax year is chosen, the accounts may represent
income for less than 12 months but the following
year and subsequent years will cover a full 12 months’
trading.The method of taxation
Assessments of income tax are made for tax years which
run from 6 April in each year. Thus, the tax year 2005/
2006 runs from 6 April 2005 to 5 April 2006. In broad
terms the assessment will be based on the profits of
the business for the accounting year which ends in the
same tax year. Thus, if the year end of the business is
30 September 2004, the 2004/2005 assessment will bePart 2Business organisations