A government think-tank, the Office for Tax Simplification (OTS), was briefed to consider a non-tax issue, a restricted form of limited liability for sole traders.
At present, a sole trader’s personal assets (including their home) are vulnerable to a claim by business creditors if the sole trader business becomes insolvent.
The principle behind this Sole Enterprise with Protected Assets (SEPA) scheme is that it will allow an individual to continue to trade as a sole trader whilst offering protection for their primary residence against claims arising from the business. The primary residence will not be protected from personal claims nor will any other asset be protected.
In essence, SEPA offers a limited, limited liability vehicle for sole traders.
In conclusion the OTS report says:
The case for SEPA’s introduction is not by any means cast iron. But our work indicates that SEPA has the potential to be a useful simplification for those that would otherwise consider incorporation. Furthermore, it could provide a boost to enterprise.
Accordingly, we recommend that it should be developed into a formal proposal. While doing so, one would have to address some of the issues that we have raised in this report as well as fully assessing any impact on the creditor and debt collection markets.
Which in plain speaking means SEPA is a good idea, but don’t hold your breath. We will have to wait and see if the required changes in legislation appear at some future date.
If you would like to talk to us about this article please contact DSC Chartered Accountants in Harrogate on 01423 560547 or in Leeds on 0113 243 3559.