How to structure your business to minimise your tax burden

As a small business owner in the UK, minimizing your overall tax burden can be a crucial part of maximizing your profits and ensuring the longevity of your business. With tax rises now in place since April 2023 for self employed and limited company directors , it’s more important than ever to understand how to structure your business effectively to reduce your tax liabilities.

Your business structure

One of the key factors to consider is your business structure. Moving from self-employed to a limited company can be a tax-efficient option for those with profits circa £55,000 (not including Scotland, where it will be lower), as you’ll be paying less tax than as a self-employed person. This structure can also offer benefits such as separation of personal and business finances, as well as presenting a more established image to potential clients.

Dividend payments

Dividend payments are also important to consider, especially with the reduction of the dividend tax-free allowance over the next two tax years. If you don’t need to extract profits above the personal basic rate tax band, keeping profits in the business as a buffer for future uncertainty can be a tax-efficient option. If you do need to extract profits above this band, it’s worth doing so in tax year 2023/24 instead of 2024/25 to minimize your tax liabilities.

Your salary from the business

Finally, remuneration packages can also impact your tax liabilities. With the freezing of tax-free allowances, it’s important to understand how this affects your entry point for paying higher tax rates and how this impacts specific groups such as landlords and those receiving child benefit.

Overall, the key to minimizing your tax burden as a small business owner in the UK is to understand the various factors at play and how they interact with each other. Consider your business structure, dividend payments, and remuneration packages carefully, and consult with us if needed to ensure that you’re making the most tax-efficient decisions for your business.

By taking these steps, you can maximize your profits and ensure the longevity of your business even in challenging economic times.