Describe the 'Companies Act 1985' and give a simple example of what a student working with IT in a school/college should look out for?

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M.P. Ossa | College Teacher | (Level 1) Distinguished Educator

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The Companies Act of 1985 is an article created in Parliament which properly identifies and describes small and mid-sized businesses in order to correctly tag them in terms of taxation,permits, and rights.

The Act describes in section 247 (3):

    (2) Under the heading "Small company" - 

(a) for "Not more than £2.8 million" (turnover) substitute "Not more than £5.6 million"; and

(b) for "Not more than £1.4 million" (balance sheet total) substitute "Not more than £2.8 million".

    (3) Under the heading "Medium-sized company" - 
(a) for "Not more than £11.2 million" (turnover) substitute "Not more than £22.8 million"; and

(b) for "Not more than £5.6 million" (balance sheet total) substitute "Not more than £11.4 million".

The act was also used to identify the exemptions under which these small and medium-sized businesses will be audited, and it is notable to see how due to inflation and the economy the amounts have changed considerably:

According to it:

(1) Section 249A of the 1985 Act (exemptions from audit for certain categories of small company) is amended as follows.

    (2) In subsections (3)(b) and (3A)(b), for "£1 million" substitute "£5.6 million".

    (3) In subsection (3)(c), for "£1.4 million" substitute "£2.8 million".

The importance of this Act is that since so many people are beginning their home-based or family businesses, special consideration needs to be given to the importance of the income that these companies generate for the purposes of redistribution and taxation. 

For a student working in IT, this takes special consideration because many IT students can find in their field a myriad of opportunities to start a computer-based business. However, they have to take into consideration that their businesses may generate more income than what is considered for a "small business" and they have to be willing to classify their businesses as "medium businesses" even if its at a higher cost to them.

It is important to understand this Act so that the future IT entrepeneurs will not end up becoming wrongly audited and accused of making shady or illegal transactions from the incomes that their companies generate.

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