04
Business tax
Individuals may carry on a business as a self-employment or in partnership as opposed to being a shareholder in a company. As 5 April 2025 approaches, you should carefully review your position in good time to commence any action that will require completion before that date.
Owner-managed business
Key issues
Succession – will Business Property Relief shelter my estate from IHT?
Company or partnership? How should I trade?
How to structure the shareholdings
Pensions
Renting a property to your company? Is it a good idea?
Extracting profits from an owner managed business or family-owned business
Profits and cash in an owner managed and/or family-owned business can be paid out in a number of different forms, each of which has its tax and other advantages and disadvantages.
Maximise capital allowances
Claim for:
- The Annual Investment Allowance, which the Government has retained at £1m
- Full expensing to gain 100% relief for the cost of assets
- 50% relief for the cost of long-life assets
- Structures and building allowances on acquiring commercial buildings or on their construction.
Repay loans from a close company
If you have received funds by way of a loan from a ‘close’ company of which you are a shareholder, the company will face a 32.5% tax charge if the loan is not repaid within nine months of the end of the company’s accounting period.
Repaying the loan within the nine-month period therefore avoids the tax charge. But if it is repaid later, the company must pay the tax charge within nine months of the end of the accounting period (to avoid interest accruing) and then wait to claim repayment of the tax until after the end of the accounting period in which the loan is repaid.
The repayment can be funded by way of a dividend, although this will of course be taxed in the hands of an individual shareholder.
Any new loan made by the company to a borrower within 30 days is effectively treated as a continuation of the old loan.
Pay employees tax-efficiently
The following are all tax-free benefits that can be provided to employees:
- A mobile phone
- An interest-free loan of up to £10,000
- Payments of up to £312 per year (£6 per week) are also tax free if the employee has to work from home (previously merely if they did).
- Long service awards
- Up to £150 per year for entertaining per employee
- Free parking
- Free electricity to charge an electric car or bike
- Workplace nursery
- Relocation costs of up to £8,000
- Temporary Workplace Relief (TWR) can be a valuable relief.
Employ apprentices
There may be no National Insurance Contributions (NICs), either for the apprentice or the employer.
Temporary workplace relief
If staff are required to work away from home for up to two years there are a number of important tax breaks, including travel costs from home to work and subsistence payments within limits.
Electric cars
The taxable benefit of a company car depends not only on the list price but also on the level of CO2 emissions.
A percentage is applied to the list price of the car and accessories – the older and higher the emissions the higher the percentage. Electric cars will attract tax based on only 2% of their list price for 2024/25.
Coronavirus reliefs
These were a potential minefield. Take professional advice and exercise care. Do not claim anything that you are not entitled to.
Have you claimed Coronavirus Job Retention Scheme payments (CJRS), Coronavirus Support Payments (CSP) or Self-Employed Income Support (SEIS)? Are you sure you were entitled to them and reported them correctly to HMRC?
Review partnership structures
A partnership that employs a service company, has partners with a fixed share or ‘salaried’ partners that are treated as self-employed or makes partnership profit allocations that HMRC may regard as uncommercial will cause these partners to have their taxable profit share recalculated and possibly be subject to PAYE.
If you think any of these scenarios may apply to you then you should seek advice immediately.
- Mixed members
- Disguised salary
- Disguised Investment Management Fees (DIMF)
- Carry.
Potential partnership tax problems
- Mixed members – if a company partner is owned by an individual partner their profit share can be reallocated and taxed on that individual if HMRC deem the company’s profit share to be excessive
- Disguised remuneration – if a partner is rewarded with an excessively fixed profit share they can be re-characterised as an employee and PAYE can be due, as well as NIC.
Potential partnership tax problems
Some partnerships act as fund managers. There is much anti-avoidance around these rules, especially if these partnerships do not get rewarded by a cash fee but by sharing in the profits of the fund. Two such issues are:
- Carried interest is taxed at a special CGT rate of 28% which will increase to 32% after 5 April 2025. This is proposed to rise and in due course carry will be subject to tax and NIC.
- Disguised Investment Management Fees (DIMF): It mostly applies to fund manager partnerships remunerated on a basis other than a cash fee. It is taxed as income from a self-employment. This is a complex area and requires specialist advice.
NIC planning
National Insurance Contributions are the second largest revenue raiser for the Government, comprising around 15% of all taxes raised. Planning to minimise NICs is surprisingly often overlooked.
International element
- Who is the employer – home country or foreign country
- Liability to social security contributions in the other country
- Reciprocal social security agreements
- Multi-lateral agreements with the EEA
- Multiple employments.
Employed vs self-employed
There is no Employer’s NIC for the self-employed which now saves over 15%. What benefits are being purchased? Should I pay voluntary contributions?