A recurring theme from clients is that they don’t want to pay any tax. Unfortunately for most people this is not an option if they have a business is making money. Even Starbucks and Amazon pay some tax, though they tend to choose in which country they pay it, and are big enough to make deals with the countries where they pay the tax to agree a beneficial rate!
So our real challenge is to make sure that clients pay the minimal amount of tax whilst complying with the law. And whilst painful, paying one type of tax can mitigate the need to pay another as the two examples below show. There are many more.
To take an income from a Limited Company an owner Director could pay themselves a PAYE salary like the rest of their staff. This would entail paying Personal Tax and National Insurance on that income. However by leaving the money in the Company, they can then take dividends and pay a lower overall rate of tax. The painful part of this is payin gthe Corporation Tax that is due on the profits of the Company, but by paying this tax the client is enabling themselves to have a lower tax rate overall.
Another example is on incorporation of a sole trade or partnership business. If the goodwill is sold to the Company and the correct elections are made, an upfront payment of Capital Gains Tax at 10% can save Corporation Tax in the future.
So sometimes payment of tax, whilst painful, is necessary. The key is to be paying the correct tax, at the right time.