Financing a new business

In this lesson

1. 0:00 Financing sole traders and partnerships
2. 1:23 Financing companies through debt and equity
3. 3:12 Tax treatment for corporate and individual investors
4. 4:30 Commercial considerations for shares versus debt
5. 6:06 Worked example: comparing dividend and interest income

About this lesson

You'll discover the tax treatment for each option—including interest relief, dividend taxation, and reliefs available to investors—and see how to compare investments on an after-tax basis. This is essential knowledge for FM and SBL papers, where you need to advise on optimal financing decisions and calculate the true return on investment after tax. The first part examines sole traders and partnerships. When owners invest capital, sole traders receive no interest and are taxed only on profits, while partners can claim interest on capital if the partnership agreement allows it. If they borrow to invest, sole traders get relief on interest against trading profits, and partners receive relief against total income. You'll see how these rules shape financing choices for unincorporated businesses. The second part focuses on company financing through debt or equity. Shares are limited to the statement of capital and return dividends from distributable profits (not tax-deductible); debt has no limit, costs interest (tax-deductible on an accruals basis), and must always be paid regardless of profit. You'll explore reliefs for share investors—EIS, SCS, VCT, investors relief, and business asset disposal relief—and how corporate bonds are exempt from capital gains tax. The lesson then compares taxation for individual and corporate investors across both options, showing why after-tax income, not gross income or tax alone, determines the best investment choice.

Duration: 8m