Mr B has been production manager in a large engineering firm for several years, earning approximately £50,000 p.a. He has recently decided to start up his own business and seeks your advice on all of the differences, from a taxation point of view, between trading as a sole trader or as a limited company. It is possible that his wife will become involved in the running of the business.

He has estimated that during the first year, while the business is developing, it is unlikely that any profit will result. Indeed, it is possible that a loss will arise. Thereafter he anticipates that profits will rise rapidly to approximately £70,000 p.a. His living expenses amount to about £20,000 per year and initially this will be provided from his savings.

You are required:

To prepare a list of headings which would be contained in a report designed to highlight these differences. Under each heading, you should give a brief description of the difference between trading as a sole trader or as a company. You are not required to write the complete report.