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The Ultimate Tax-Efficient Business Structure
When setting up your own business, it is of paramount importance to consider which structure is most appropriate to your business out of all of the options available to you. And if you have already set up your business, are you sure that the structure that you are currently using is the most beneficial?
Perhaps you have considered being a sole trader or a partnership, or maybe even trading through a limited company? But have you considered combining the two and going into partnership with a limited company? This could give you the “best of both worlds” from a tax and legal point of view, particularly if your partnership is a Limited Liability Partnership.
This type of business structure gives you flexibility, usually associated with self-employment, together with limited liability, usually associated with limited companies, whilst also offering the opportunity for some very efficient tax planning which may help you to legally avoid paying higher rate tax on some or all of your drawings.
In addition, if you have any senior, well-paid employees who you would like to tie into the business for the future, there is also a way in which you can bring these individuals in as members to the LLP in a very tax-efficient manner avoiding Employer’s National Insurance without necessarily giving away any of your ownership of the existing business.
There are an enormous number of variations that this structure can take, and various methods in which tax savings can be made, of which the following case study offers just one example…..
Business A makes £250,000 per annum before owner’s drawings, and has one owner who draws £150,000 per annum before tax.
If the business was to trade through a limited company, and the owner was to draw a small salary and dividends, the corporation tax bill would amount to £51,450 and the owner would face a further tax bill due to the higher rate tax on his dividend of £28,176. Therefore, the total tax bill would be £79,626.
If the business was to trade via an LLP with a corporate partner structure, the corporation tax bill would remain the same, assuming that the limited company partner received the same level of profits. However, if the owner is able to draw against capital, their personal tax liability would be nil, as they would no longer be drawing dividends from their higher rate tax band. Thus their annual saving would be £28,176!
If you believe that you are paying more than you have to in tax and you draw more than c.£45,000 from your business, why not come along to our next forum on Thursday 11th September which will demonstrate just a few ways in which LLP’s can be used to make your business much more tax-efficient.
The forum starts promptly at 9am, but sausage or bacon rolls and as much tea/coffee as you can drink is available from 8:30am. The forum also lasts approximately 90 minutes so you can be back at your business well before lunch.
These forums are very popular, we currently have three spaces left so please email jenny@a4gsolutions.co.uk a.s.a.p to check availability and book your place.
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