Profits for Business Owners
Ahead of the end of the tax year, business owners need to ensure that they are doing everything they can to help achieve their business and personal goals. The key to this is maximising the profits.
Once the business is in good working order, business owners should consider how they can extract their profits efficiently. This can be done in a number of ways including:
- Making use of the different rate bands: planning income withdrawal to make sure business owners are not falling within the more expensive tax bands is a simple way of saving tax. Remember the band between £100,000 and £123,000 has an effective tax rate of 60% so should be avoided if possible.
- Balancing income between family members: if family members are shareholders or work in the business their allowances and reliefs can also be maximised.
- Dividend vs salary: despite the increase in dividend tax rates it is still cheaper to draw profits via dividend rather than salary.
- Using the dividend allowance: the £5,000 tax free dividend allowance will be reduced from 5 April 2018 so make sure it is used.
- Making tax efficient investments: mitigate liabilities still further by making tax efficient investments such as investing in companies via the Enterprise Investment Scheme.
- Capital expenditure: has the business used its annual investment allowance (currently £200,000)? With a 100% tax deduction this is very attractive so purchases should be timed carefully to make the most of it.
Simple planning techniques can ensure you are able to enjoy the profits of the business now without the tax being too painful. It is also important to plan ahead.
For more information, please contact us