OVER the past few years, accountants have advised the self-employed to incorporate their businesses because the Government introduced a favourable tax regime.

The Government has now changed its policy towards the small company by implying that incorporations have taken place merely to avoid tax.

From April 1 a 19 per cent tax charge was brought in on dividends paid where a company's taxable profit is less than £50,000. The result: Many company directors now questioning whether to disincorporate or not.

But why rush? The overall tax payable for a company with profits of £14,745 is just £1,900 - if a salary is paid to the director of £4,745 and a £10,000 dividend is taken. Compare this to a sole trader's tax, on the same profit level, then the amount due is £2,864. The saving is still £964. The tax advantage obtained from incorporating is not as great as it was prior to the budget. In addition, the costs of running a limited company will further reduce that advantage. If you have any concerns please contact your adviser.

BUSINESS plans come in various shapes and sizes. I have known some business plans to be 70 to 80 pages long. This may be acceptable to a bank, but your team members won't read it! The business plan then becomes worthless if only the business owners know what the business is trying to achieve! A successful business plan needs to be specific, measurable and simple. Our own business plan is three pages long and everyone has read it.

Furthermore all team members have contributed to it. There are several stages in business planning and as with everything, the start is the most important.

In the first stage, business owners need to consider what is the purpose of the business. Is it to make money? Make widgets? Or is it to service its customers? I believe the answer is always customer-based. Without customers, we cannot make money, manufacture our products, or pay our team. The business exists to serve the needs of the customer.

Before next month I would like you to answer this question. What is the purpose of your business?

Meanwhile, my final thought this month is a saying I use a lot - people don't plan to fail, they fail to plan.

Updated: 09:40 Tuesday, June 01, 2004