Are you reconsidering the benefits of running a Limited Company?
At the start of the summer holidays I blogged about the benefits of setting up a Limited Company then a few short weeks later George Osborne’s budget proposed fundamental changes to the tax structure associated with Limited Companies.
Overview of new dividend taxation structure from 6 April 2016
|Up to £5,000
|Tax-free dividend income|
|Up to £43,000
|Basic rate charged at 7.5%|
|Up to £150,000
|Higher rate charged at 32.5%|
|Additional rate charged at 38.1%|
At Murrison and Wilson we nurture entrepreneurial spirit and business growth and are concerned that Limited Company business owners will panic and put the business up for sale without talking to an expert and fully assessing all the options.
Selling up is a knee jerk reaction and selling a business isn’t easy as it has its own set of tax rules and obligations to your staff and HMRC.
What should you consider?
For many business owners a Limited Company can still be a tax efficient option but this tax year is the time to sit down and consider your next move.
For example the options include:
- The amount received in the form of salary and dividends
- Should I now consider making pension premiums as part of the mix?
- The amount remaining in the company
- Maximising personal and/or marriage & civil partner allowances
- The number of appointed directors and/or shareholders in the business (family & friends)
- Updated tax breaks for employers with reduced N.I payments
- Other tax efficient investments: SIPPS & ISAs
- 2015-2016 tax year allowance.
Will I be paying more tax?
A number of my clients have asked this question. It’s not a simple yes or no answer as every business has its own set of unique financial circumstances and depends on which tier you fall within (see table above). What is certain that is for most business owners who take a mix of salary and dividends the tax bill is set to rise if nothing is done but generally the current strategy of mixing salary and dividends remains more tax efficient than being self employed.
I can confidently say there will be winners and losers but those that seek advice from an expert early on are more likely to be better off than those that bury their head in the sand until the next tax bill.
Are there still benefits of running a Limited Company?
A Limited Company can still be a tax efficient option for owner managed businesses. The amount received in the form of salary and dividends should be regularly reviewed as a matter of course.
There are a number of issues in for example widening the business out to family and friends some of which but not all are tax related and our advice is not to do anything without taking advice.
Remember there are other good reasons for running a Limited Company such as the perception of the business, types of businesses you can deal with, reducing your personal risk and enhanced flexibility for business growth.
It’s well worthwhile talking to an expert who can further develop a business plan around the business that you’ve worked so hard to build up. This is why Bruce Wilson and I are setting aside time in the diary for all of our Limited Company clients to review their position and guide them forward. We welcome any new enquiries too.
If you’re the owner of a Limited Company and thinking about selling up or looking to discuss your options call Simon Murrison on 0141 290 0262 or email firstname.lastname@example.org or connect via LinkedIn or Twitter.