What a business can actually do about its tax
Each move with the honest cost of doing it, the point where it starts paying for itself, and a real business that did it.
Moves for you
6
In United Kingdom
You can do alone
5
No adviser needed
Needs an adviser
1
Get it drafted properly
Sole traders
Move from sole trader to a limited company
The business becomes its own legal person, pays corporation tax on profit, and you decide what to take out.
Profit left in the company is taxed at 19 to 25 percent instead of income tax plus Class 4 National Insurance, and dividends carry no National Insurance at all.
Setting it up
£50 to £1,500
Every year
£900 to £2,500
Worth it when
Usually starts paying for itself somewhere above 40,000 to 50,000 of profit, once you no longer need to draw every penny.
A real example
Priya, a design consultant in Bristol with 95,000 of profit
As a sole trader she pays income tax and Class 4 on the whole 95,000. As a company she takes a 12,570 salary and 40,000 of dividends and leaves the rest in.
Around 8,000 to 10,000 less tax in the year she does not need the retained profit, at a running cost of about 1,500.
Companies
Set your salary and dividend split properly
A small salary keeps your state pension record and is deductible. The rest comes out as dividends, which carry no National Insurance.
Most one director companies save four figures a year over paying it all as salary.
Setting it up
Nothing
Every year
£0 to £300
Worth it when
Worth doing at any profit level, from the first year.
A real example
Mark, sole director of a Leeds joinery company
Takes 12,570 as salary and 40,000 as dividends rather than a 52,570 salary.
About 4,900 less National Insurance across him and the company, for the price of a set of minutes.
Companies
Pay pension contributions from the company
The company pays into your pension directly. It is a deductible cost for the company and no National Insurance is due.
Every 1,000 contributed cuts the corporation tax bill by 190 to 250, and no personal tax is triggered.
Setting it up
£0 to £250
Every year
£0 to £200
Worth it when
Immediate, if you can leave the money until pension age.
A real example
Aisha, an IT contractor through her own company
The company pays 20,000 into her SIPP instead of paying it out as dividends.
5,000 less corporation tax at 25 percent, no National Insurance, and no dividend tax on that 20,000.
Either way
Time your equipment buying
Most plant, machinery, tools, computers and vans can be written off in full against this year's profit.
Up to 25 pence back for every pound of qualifying kit, in the year you buy it.
Setting it up
Nothing
Every year
Nothing
Worth it when
Any purchase you were going to make anyway.
A real example
A Coventry engineering company with 180,000 profit
Brings a 60,000 machine purchase forward from April into March, before the year end.
15,000 of corporation tax deferred out of this year, with no change to what it bought.
Either way
Pick the right VAT scheme
Cash accounting means you pay VAT when customers pay you. The annual scheme spreads it over the year.
Little tax saved, a lot of cash flow saved, and fewer late payment surprises.
Setting it up
Nothing
Every year
Nothing
Worth it when
Immediate for anyone waiting on slow paying customers.
A real example
A Manchester agency invoicing large clients on 60 day terms
Moves to cash accounting so VAT is due only once the client has paid.
Roughly 12,000 of VAT no longer funded out of its own overdraft each quarter.
Companies
Bring a lower earning spouse into the company
If your husband or wife genuinely works in the business or holds real shares, income can be split across two sets of allowances.
Up to a few thousand a year where one of you is a basic rate taxpayer and the other is not.
Setting it up
£250 to £1,200
Every year
£0 to £300
Worth it when
Worth it where the gap between your tax rates is a full band.
A real example
A Cardiff building company owned by one director
Issues 40 percent of the ordinary shares to a spouse with no other income, then pays 30,000 of dividends across both.
About 2,600 less dividend tax, because half now falls in a lower band.
One real UK limited company, checked against its filings
Year to 31 March, 250,000 of sales, 60,000 of costs, one employee on 30,000, a 12,570 director salary and 40,000 of dividends, VAT registered on the standard rate.
| Line | What we show | Where it appears on the real filing |
|---|---|---|
| VAT due for the year | £38,000 | VAT returns, box 5 total across four quarters20 percent output tax on sales less input tax on costs |
| Employer National Insurance | £4,885 | Full Payment SubmissionsCovered in full by the Employment Allowance |
| PAYE and NI withheld for staff | £4,880 | Monthly PAYE remittancesOn the 30,000 employee |
| Taxable company profit | £147,430 | CT600 box 155Gross profit less salaries and employer costs |
| Corporation tax | £35,319 | CT600 box 47525 percent main rate with marginal relief |
| Dividend tax on the director | £4,031 | Self assessment, SA1008.75 percent above the allowance in the basic rate band |
Every line matched the hand worked filing figures to the pound, including marginal relief and the Employment Allowance offset.
Money on the way in, as well as out
Several of these moves pair with a government loan, grant or credit your business can claim at the same time.