Welcome to our video series of Tip-Top Tax Tips for 2015. We’ll be giving you 5 of our top tips to cut your tax bill in the year ended 5 April 2016. In the final part, we’ll talk through the tax savings you can make by planning the end of the business in advance.
You can watch it here, or read all about it below.
Hi its Jon Davies here. This is the 5th of our Tip-Top Tax Tips for this year.
Because this is our last tip, I’m going to talk about planning for the end of your business, or your exit from the business.
The tax relief I want to talk about is Entrepreneurs Relief. This is a relief that was brought in as an incentive for business owners who are creating jobs and wealth., Its can be really, really beneficial because, when you do sell up or close down the business, you can pay tax at 10%, instead of standard Capital Gains Tax of 18% or 28%. If you plan a couple of years in advance, you could be paying the 10% instead of your income tax rate at 40% or 45%.
Now what this means is that it’s worth planning in advance because the difference in figures can be pretty big.
Let’s just have an example of £100,000 in the business, as it’s a nice round figure for me – I am just an accountant! If you take this as a dividend and you’re a higher rate taxpayer, you’d pay £25,000 of tax. If you’re an additional rate taxpayer, you’ll pay £31,000.
But, if you wait and take it out on closing the company, there are substantial savings. Under Entrepreneurs Relief, you get the first £11,000 tax-free, and then a 10% tax bill on the rest. So the tax bill is £8,900. That’s a huge difference – do you want to pay £25,000 or £8,900? That’s a saving worth waiting for.
But you do need to plan in advance.
A number of our clients have done this now and it does come down to that – planning. With our help, one of our clients actually planned three years in advance – they knew that the goal was to close the company in three years. Therefore, for those three years, they took out less from the business and left a lot of money in the business. They then closed it down and only paid 10% tax. In one instance, this actually saved over £100,000 in tax. So Entrepreneurs Relief can be a really useful thing. But it does need planning.
And that’s a common theme across all of the tax tips – planning. You do need to speak with an expert regularly to see where you are, and to plan to keep your tax bill down.
If you need any more help let me know.
I hope you found the whole series useful. If you missed any videos, they’re all on the MJF Youtube channel for you to watch.
I hope to see you again soon.
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