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Steve Downs, Avicenna’s finance director, considers the best way to own your business

You can either own your pharmacy via a company or as a sole trader. There are three things to consider in deciding how to own your pharmacy. But first, it is important to remember that a company is a legal entity and, even if you own all the shares in it, that company is separate from you in terms of legal status and for tax purposes.

But before assessing your options, think about where you are now. If you already own your pharmacy via a company then it is unlikely to be sensible to transfer ownership to you in a personal capacity. If you currently operate as a sole trader, or you are thinking of buying a pharmacy, then you should consider the following:

1. Confidentiality

This is important for many people, although not as significant as it once was. As a sole trader, the only people that see how much profit you make are you, your accountant and the taxman. A company has to file accounts each year at Companies’ House and these accounts can be seen by anyone. Recent changes in law mean that for small companies much less information is disclosed than before, but if this is important to you the sole trader route is likely to be your preference.

2. Taxation

Owning via a company gives you more tax planning opportunities than a sole trader. If you operate as a sole trader you will be taxed on all of your profits at personal tax rates, which can be as high as 45 per cent, plus National Insurance contributions.

HMRC will tax your company on its profits; and then it will tax you on the earnings that you take from the company. This is not as bad as it sounds. The company’s profits will be taxed at 20 per cent, and if it pays you a salary this is deducted in calculating profits.

Any salary that you pay yourself will be taxed in the same way as any employee. As a shareholder you can elect to pay yourself via dividends rather than a salary, which usually means you have to pay less tax and National Insurance. If you and your spouse are both shareholders the benefits are greater. Your accountant will advise which is best for you.

3. Security

This is not your physical security but your financial security. If you are very unlucky and lose money and become bankrupt, as a sole trader you are personally liable for any debts. If a company owes the money, unless you have given personal guarantees or given your house as security, the creditors cannot look to you to recover amounts owing to them, they can only chase the company. Take advice and consider all the factors before deciding.