Wealth Check: There's no business like your own business - but it has many pitfalls

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The Independent Online

An accident made Patricia Babin change careers. She was a teacher at a London secondary in 2000 when a student knocked her down, injuring her back. She was off for six months and an entrepreneur setting up Accident Claims UK, a compensation claims company, employed her as a co-director.

Now 32, Ms Babin is starting her own claims company, Frog Claims. "I will be aiming for people who need linguistic help," she says. "I was a languages teacher and there are many people who don't speak good English and are unaware of no-win-no-fee compensation claims if they had accidents."

She plans to use her credit card for any immediate expenses but wants financial tips. Ms Babin lives with her eight-year-old son, Antony, in a council house in Northolt, Middlesex. She plans to establish a company pension and would like advice on retirement provision.

Patricia Babin, 32, company director

Status: Divorced. Son aged eight;

Occupation: Director of Frog Claims; co-director of Accident Claims UK;

Education: BA in French studies at Goldsmiths College, London; MA in theory of literature at University College London; post graduate certificate in education;

Salary: £34,000 annually;

Pension: Teacher's superannuation pension;

Car: Vauxhall Vectra;

Debts: £4,000 on credit card;

Savings: £6,000;

Outgoings: Approximately £1,000 per month.

Solution 1: Pension

Mr Connor says Ms Babin should look into an executive pension plan. The maximum pension from this type of plan is limited by final earnings and length of service. There is no limit on employer contributions, although employee contributions are limited to 15 per cent of earnings. Mr Rafiq says Ms Babin has some years in the teachers' superannuation final salary scheme. Since it is good practice to keep benefits in such schemes he thinks Ms Babin should stay as a deferred member.

Solution 2: Mortgage

Ms Gee says the lender will ask to see several years' accounts and she may find them unwilling to offer mortgage terms. She should speak to her bank or building society about this.

Mr Connor says she should buy her council home, with its discounts. She should contact her local authority for an RTB1 form to start the ball rolling.

Solution 3: Directorship

Mr Rafiq says financing is the key to setting up a new business. There are many ways she could consider financing the business: bank loan, venture capital, corporate investment. She must have good advisers to help with fundraising.

With the business, she is taking a serious financial risk, so she should insure her life to cover the business liabilities and protect her son.

Ms Gee says Ms Babin should consult Business Link, a national business advice service. Their website (www.businesslink.gov.uk) has helpful guides on many issues, including a business plan, responsibilities and tax queries. They also have consultants you can call for further help. Mr Connor says Ms Babin is in the process of selling her share of Accident Claims UK but it is unclear how much she will receive.

Providing she has held her shares for more than two complete tax years, she will get business asset taper relief. This means the maximum rate of capital gains tax that will apply is 10 per cent.

Solution 4: Tax Liability

Ms Gee suggests Ms Babin appoints an accountant who has experience in business start-ups. She should remember to document everything, because she should be able to set part of her home costs against tax while she is working from there.

She should therefore keep all receipts, statements and correspondence. She should set up a bank account for the business and needs to do this before she is up and running, and may find the bank manager is helpful when it comes to assisting her plan and helping monitor the business.

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