Recent tax increases seem unfair to small businesses – how can I reduce what I pay for my painting and decorating business? BANK ON DAVE replies
- Will the increase in corporate income tax affect my painting and decoration business?
- Is there any way I can reduce the tax due?
- Do you have a question for our company doctor? bankondave@thisismoney.co.uk
I run my own business as a painter and decorator and am registered as a limited liability company.
I heard that the corporate tax rate has been increased to 25 percent from the start of this fiscal year.
Is this something that will affect me and is there a way to reduce the tax I owe?
Such an increase does not seem fair to small businesses, many of which are already struggling right now.
I’ve been in business for years and have many loyal customers in my area, but some tell me that they are cutting their budgets or putting off renovations due to the rising cost of living, so I like to lower my costs where possible.
Ask Dave your small business question bankondave@thisismoney.co.uk
I am concerned about the corporate tax increase for my painting and decorating business – is there a way to avoid it?
Dave Fishwick, This Is Money’s company doctor, replies: While you are partially right, the 25 per cent rate only affects winnings above £50,000.
The rate below that remains the same, namely 19 percent.
Companies with profits in excess of £50,000 whose directors pay themselves a small salary supplemented by dividends should review this policy to see if it is still the most tax-efficient strategy.
This change may affect you as a public company and will affect one of the main tax advantages of a public company,
As a self-employed sole proprietorship, you are treated in the same way as an employee for tax purposes. If you earn more than the fiscal limit in profit per year, you pay a higher rate of 40 percent tax on any additional earnings.
Another advantage of being limited is that the company’s finances are separate from yours, so should the company owe money or be subject to legal action, your home and personal savings will not be at risk as if you were a sole proprietor. are.
However, in your industry, it seems unlikely that you could be in this situation, especially since you will no doubt have public liability insurance that would help cover these additional legal costs.
Claiming tax relief on allowable expenses reduces the amount of profit, which reduces the amount of corporate tax your company pays.
Your salary is an allowable expense, so if you are a corporate executive, paying a company salary can help you lower your corporate taxes.
Taxes on dividends have also recently increased and accounting costs are higher as a limited liability company because there are more rules to comply with.
I recommend making an appointment with your accountant to determine if it still makes sense to be restricted. I suspect that for quite a few sole proprietors who have incorporated limited liability companies for their tax benefits, the answer may be that it isn’t.
Good luck!