Retailer benefits from five figure tax saving

THE BUSINESS

A growing and very profitable owner managed business run by a husband and wife team. Each was facing an increasingly higher personal tax liability as well as significantly higher corporation tax liabilities. Business operations were expanding and becoming increasingly complex, and consequently, each trading entity had outgrown their initial business start up structure, and was no longer efficient from a tax or an accounting point of view.

OUR APPROACH

We reviewed all business operations and calculated their current and future tax position on the basis that nothing was altered. We also discussed the family’s personal wealth management, pension planning and retirement aspirations as well as any future plans to grow and develop their business further. During this we also uncovered some complications regarding the mixed use of a property as a commercial business and privately rented accommodation which would have prevented the use of a pension scheme solution.

THE SOLUTION

Based on this understanding and, coupled with our specialist knowledge of the various tax planning and tax reliefs available to a husband and wife with three young children running a growing business, we presented the family with our recommendations for a future structure and one illustrating their position if they did nothing. We also consulted with our colleagues in McGregors Wealth Management Limited who were able to overcome the mixed use property problem.

Having listened to and agreed with our recommendations, each trading entity was re-structured from a partnership to a limited company structure whereby the husband and wife, as directors, now took an annual dividend rather than a monthly salary. This enabled them to take advantage of the corporation tax rate of 20% rather than higher 40% personal tax rate. A Self Invested Personal Pension (SIPP) was set up to provide a pension using some of their property asset, and a number of other tax planning solutions, fully approved by the HMRC, e.g. working family tax credits, were utilised to create a totally legal tax efficient solution. The issue regarding the privately rented flat above one of the shops was also resolved. We were also able to implement some Capital Gains Tax relief planning by selling Goodwill in the partnership to the Limited Company at CGT rate of 10%.

THE OUTCOME

The family had much more cost effective and tax efficient tax planning solution. They had benefited from a five figure tax saving in the first year, and no longer pay personal tax at the higher 40% rate. They also now have a pension and a plan for retirement, and additional saving plans for their children. In addition, they had also avoided a potentially costly tax liability which could have gone on un-accounted for several more years causing a severe one-off payment when it was eventually discovered.