The corporate IFA will concentrate on the planning opportunities around National Insurance and corporation tax changes.
With the new nil rate band on profits up to £10,000 there are now five different rates of corporation tax.
|£0 – £10,000||0|
|£10,000 – £50,000||22 per cent (estimate)|
|£50,000 – £300,000</TD||19 per cent|
|£300,000 – £1.5m||32.5 per cent|
|more than £1.5m||30 per cent|
The main ways to mitigate corporation tax is to pay earnings or pension contributions. The IFA should therefore concentrate on helping owner/managers of businesses to firstly reduce profits below the two marginal rates of 22 per cent and 32.5 per cent, and then aim to get profits below the £10,000 level.
It is assumed the client will be taking earnings anyway so the advice will focus on what should be done with the 'extra' profit above directors normal earnings.
A look at some of the options should point the way.
|Bonuses, after higher rate tax employer and employee NI contributions||53.9 per cent|
|Dividends</TD||40 per cent|
|Dividends is profits below £10,000||25 per cent|
|Pay non-earning spouses up to nil rate band||0|
|Pensions for spouses||0|
Obviously this is just a snapshot and needs to be taken on reducing pensionable earnings that might reduce benefits. One final thought - for the seriously successful entrepreneur client forget income and pensions and just concentrate on building businesses and selling them in three y ears - effective tax rate of 10 per cent.
Gareth Marr is chief executive of Advisory and Brokerage Services