This morning's revelation about MP David Wilshire suggests he blatantly disregarded the rules. However the story also perpetuates a myth about owner managed businesses in the UK.
Mr Wilshire is said to have "used his House of Commons expenses to pay more than £100,000 of taxpayers’ money to his own company." Then we are informed that "there is no official record of the company’s existence and it has never filed public accounts" and that "it had never been registered as a company."
Er, perhaps that's because the business, Moorland Research Services, was a partnership and NOT a company. And of course, this in itself seems to be a clear breach of the Parliamentary expenses rules. It suggests, in effect, that Mr Wilshire was claiming expenses for payments to himself as a partner in the business.
But the implication that there is some further wrong-doing by virtue of the partnership not having been registered at Companies House serves only to perpetuate the myth that 'business', 'partnership' and 'company' are different words for the same thing.
It's important to note that being in business is NOT synonymous with running a company. I would expect most regular readers of this blog are already aware of the distinction, but for the record, there are actually four alternative common forms of business structure in the UK:
- a sole trader;
- a conventional partnership (where the individual works with one or more partners in the business);
- a limited liability partnership - LLP - (this provides the individual and their partners with the protection of limited liability, just as with a company); or
- a limited company.
There is no obligation or facility to register sole trader businesses or conventional partnership businesses at Companies House.
Before you start a business it is important to consider carefully the respective benefits, obligations and disadvantages of each of the alternative structures. And there's a lot more to the decision than simply comparing the respective tax rates. There's a host of other tax, administrative and strategic issues to consider. Sadly many people rush ahead without giving these all due consideration - but that's another subject for another day.