The tax position of small business owners

From April 22 the tax rate on dividends is increasing, what options are there for small business owners who currently pay themselves using a combination of salary and dividends??

What other options are there?

1. Retaining the money in the company and then eventually taking out the money as a capital gain; and/or
2. Taking the money out on a shared basis (e.g. with a civil partner or a spouse)

What are the advantages of each method?

1. The main advantage of taking the funds out as a capital gain is that the CGT rate on business sales is only 20%.?And could be even less at 10% if the owner qualifies for Business Asset Disposal Relief.?However it is worth considering business owners can afford to keep their money in their business for the long term, this is probably unrealistic for most owner-managers.?Also, CGT rates could increase in the future.
2. This will utilise any unused tax bands and could boost your family income amount.?

In summary:

A combination of salary and dividends remains the most tax-efficient solution, but this is likely to change as corporation tax rates are set to increase from April 2023.

Business owners are facing a period of tax rises over the coming years.?It is quite possible that these tax rises will be combined with increased inflation and interest rates.?It will become increasingly important for business owners to work with their accountants to ensure that they retain as much of their money as possible while also considering maintaining an income for any future borrowing.

Every business and business owner’s position is slightly different so we will work with you to find the best solution for you.?Please get in touch if you would like to discuss your particular situation.