Tax planning to make business dreams a reality

6th August 2021

Don’t underestimate the power of careful tax planning. It could save you thousands of pounds and it could even save your business …

You may be finding it hard to keep track of your holiday and travel plans this summer but as tax advisers, we can reassure you that one thing you can organise is your business structure and finances. Don’t let this drift. This is a ‘must do’ on your list because it will give you much better control of your business journey and ultimate destination.

Where are you heading?

If you have started a business, tax planning may not have been top of your list but it should go hand-in-hand with your aims for what you want out of your enterprise.

As of May 2021, there were around 4.2 million self-employed people in the UK. Some of these will decide that they want to keep things very simple; they may just earn enough to make a modest living and therefore becoming a ‘sole trader’ might be the right decision for them.

However, there will be many more for whom this will be the wrong thing to do. The way you structure your business will have tax and legal implications now – and in the future – so you need a sensible strategy that will suit your goals. For more information on types of business structure, take a look at our factsheet.

Tax planning to grow and move in the right direction

If you know you have ambitions to employ others and expand, becoming a sole trader is unlikely to be the right choice for you. We hear from new clients frequently when they realise, after several months of trading, that the way their business is structured doesn’t meet their needs. Your business may be growing fast and you might have bigger ambitions, which are better suited to being a limited company. For example, as a limited company, you can use salaries and dividends to take your profits and you can also access appropriate reliefs, such as Research and Development tax credits.

You might want to grow your business to sell it in five – ten years’ time. Or you may decide to keep it as a family concern.

Exit here and have a nice day

Once you have an established business and have been travelling the road awhile, you may feel that your destination is, potentially, in sight – you may have a certain company size in mind or possible company value/sale price and you may start wondering about being able to stop and sell. This, too, needs a tax strategy and careful planning to provide the best chance of success.

Obviously, if you are retiring, you will need a clear pension plan but when selling you will also want to consider the tax situation (Capital Gains etc – see our factsheet).

If you’re hoping to keep the business in the family, you’ll need to consider the effects of measures like inheritance tax and gift holdover relief when passing it on.

Depending on the way a sale is structured, how much tax planning you have done and how your business affairs are set up, you could save a substantial amount.

You will appreciate from this brief overview some of the benefits of sensible business structuring and early tax planning.

To optimise the advantages it is best to talk to a tax expert. Do contact us if we can help on any of these matters.

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