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Entrepreneurs Relief

  • Tax Changes From April 2026

    1. Dividend Tax Increases – 8.75% to 10.75%, 33.75% to 35.75%, no change to 39.35%

    Another reason for owner-managers to consider higher salaries instead of dividends from April 2026.

    Always check your figures as there are many variables to consider: income tax rates, NI thresholds, NI employer allowance availability, corporation tax rates, other income.

    2. Making Tax Digital – Income Tax Self Assessment (MTD ITSA) – Quarterly reporting 

    Get yourself geared up if your sole trader turnover and landlord gross rents together were over £50k in your 2024/25 tax return.

    The minimum is to have income and costs on a spreadsheet and have filing-only software ready for the first deadline of 7 August There’s no need to spend a lot and beware of free software which rarely remains free and will use up your time.

    Your life will be a lot easier if all income and costs go through one bank account for each sole trader business and your landlord business. 

    3. No Tax Relief For Unremibursed Home Working Costs

    If your employer doesn’t reimburse you for your home working costs, you can no longer claim tax relief against your employment income.

    Check your Tax Codes for the 2026/27 tax year to ensure any historical deductions aren’t included, otherwsie you’ll need to repay this tax relief in your tax return or by an adjusted Tax Code or P800 issued to you in due course. This includes the £6 per week commonly claimed by staff.

    4. Benefit In Kind For Electric Cars – Increase from 3% to 4%

    For a £50,000 electric car, the benefit in kind will increase from £1,500 to £2,000, increasing the tax paid for a higher rate taxpayer from £600 to £800.

    Electric cars remain generally tax efficient particularly when purchased through your company enjoying 100% corporation tax relief.

    5. Non-Residents Voluntary Class 2 National Insurance Payments – No longer available

    Where the full 35 qualifying years hasn’t been achieved, or may not be, sole trader or partnership taxpayers have often topped up their missing years by paying voluntary Class 2 national insurance. This option will no longer be available to non-residents.

    Similarly, the more expensive, but potentially still cost effective, route of making Class 3 contributions, will require qualifying residencies to be for much longer at 10 years rather than 3 years.

    6. Capital Allowances – Reduction in write down rate from 18% to 14%

    Not a main issue for most owner-managed businesses, but where there are some historical pool tax written down values brought forward, the already very slow write down rate of 18% is now an even slower rate of 14%. This increases the number of years for a full write down from over 23 years to over 30 years! 

    The main thing is to ensure you get 100% reliefs wherever they are avaialable such as using the annual £1m AIA allowance.

    7. EMI Share Option Company Thresholds – Large Increases

    EMI share options really should help growth by enabling small-medium companies to attract talent without paying the highest salaries or bonuses, however they aren’t adopted as much as they could be.

    Perhaps increasing the thresholds will help by opening up EMI to larger companies such as those with gross assets of £120 million, but it’s the smaller companies that need help with simplification of the rules to keep their costs down. Thresholds for employees remain unchanged at a maximum of £250,000.

    The increase from 10 to 15 years in which an option can be exercised will be very helpful for options granted on or after 6 April 2026 and perhaps help make these more attractive to some owner-managed businesses.

    8. EIS Company Thresholds – Large Increases

    A lot of thresholds already in the millions are being doubled and should help larger companies obtain more investment, however the smaller SEIS thresholds stay the same again favouring the larger end of the SME market.

    We see the investor side of this too, so we may see more investments being made by higher net worth clients or those with some funds they are keen to use to help a growth company. 

    9. BADR – Entrepreneurs Relief – Tax increase – 14% to 18%

    This compares with 18% or 24% for other assets.

    As 18% applies only if you remain a basic rate taxpayer, you’ll often find yourself paying 24% and therefore the BADR rate of 18% is favourable. As the maximum capital gain covered is a ‘lifetime’ limit of £1m, the maximum tax saved by BADR is £60,000.

    Although it’s called a ‘lifetime’ limit, this in practice really means gains from 2008 when Entrepreneurs Relief first came into existence.

    10. Inheritance Tax – Business and Agricultural Property Reliefs – Reduced from unlimited to £2.5m and 20% above £2.5m

    As widely included in the press, mostly due to farmer protests who suffer from being asset rich-cash poor, eligible trading businesses and farms will start to pay IHT on their estates instead of an unlimited relief.

    With £2.5m per spouse, a total of £5m covers many businesses and farms, but for those exceeding this, you may want to look at family gifting either to individuals or trusts.

    Always take appropriate advice as there are numerous factors to consider. 

    11. Inheritance Tax – Relief for charitable legacies limitations

    To help ensure legacies are directed towards UK charities (or eligible sports bodies), gifts must be made direct to the charity, rather than via trustees who may make some payments outside of the UK.

    These are the main ones affecting owner-manager businesses, but always look out for others such as EIS threshold increases which may help more investment in the growth sectors generally.

    12. Penalties For Late Filing – Corporation Tax Returns – Doubled

    This is probably a good idea as these are very out-of-date.

    As soon as a corporation tax return misses the 12 month deadline, the penalty for late filing will increase from £100 to £200. If the return still isn’t filed within the next 3 months, a further penalty is due, currently £200, which will increase to £400.

    Often, directors forget about dormant companies, which are also subject to these penalties, unless HMRC has agreed in advance and hasn’t sent the company a notice to file a return.

    There are many more changes coming in later years, so continue to look out for these.

  • Spring Into The New Tax Year

    1. Frozen Income Tax Allowances

    Frozen allowances mean that more people are getting caught by a 40%, 60% or 45% tax rates and the dividend tax equivalents. As a business owner, you have more options than a regular employee.

    Some sole traders work less to keep their profits under the 40% higher rate band of £50k. Shareholder-directors should review their mix of dividends-salary to ensure they are optimised.

    A sole trader could add another person such as a spouse and set up a general partnership to even out the use of their income tax bands. A shareholder-director may ask a spouse to take on some shareholder responsibilities and receive some dividends to use their basic rate tax bands or to keep your income under £100k.

    2. Employer’s National Insurance 

    As a director-shareholder, in the light of the increase in rate from 13.8% to 15% and lower starting point from £9,100 to £5,000, alongside an increase in the annual allowance from £5,000 to £10,500, consider whether you need to change your dividends-salary mix from this month.

    For example, if your company suffers the 26.5%/25% tax rate and some or all of the increased £10,500 national insurance employer annual allowance is available to you, you’re likely to find that a director salary higher than £12,570 is more tax efficient for you.

    If you’re a sole shareholder-director without staff but with a budget for some services, consider a part time employee who can be a family member so the £10,500 annual allowance available to you. This might even save you money overall.

    As an employer facing increased national insurance costs, consider approaching employee remuneration differently. For example, bonus schemes might be replaced by a more tax efficient share option scheme or introduce a salary sacrifice scheme to replace salary or bonuses with employer pension contributions. 

    3. Pensions

    Plan, plan, plan.

    With corporation tax at 25%/26.5% for many company owners, you may wish to re-visit your company pension contributions paid into your own pension to save corporation tax. Contributions must be paid before your company year end so make sure you don’t miss that.

    4. Annual Investment Allowance and Electric Cars Allowance – 100%

    The Annual Investment Allowance rewards investment of up to £1m on plant and equipment or eligible commercial property refurbishment with 100% tax relief. Similarly, new electric cars purchased benefit from 100% tax relief with no limit.

    If you plan to incur these costs near to your year end, such as 30 June 2025, ensure you meet the conditions for a claim in this year, so you don’t have to wait a year to get the cashflow tax saving.

    Remember hire purchase contracts work, so you don’t need to have bought the assets outright to get full tax relief, assuming the hire purchase contract is good value overall.

    5. Entrepreneurs Relief (BADR)

    If you’re thinking of selling your business or liquidating and your business is eligible for BADR, ensure you exchange or receive your liquidation distribution by next 5 April 2026 so you don’t pay the higher 18% (currently 14%) applying in the next tax year.

    6. Director Small Wins

    With too many tax increases around at the moment, remember use what is still available to you. Maximise your director treats for the tax year ended 5 April 2026; trivial benefits under £50 each, totalling an annual £300 each, annual parties expenditure up to £300 each including guest or have a private health care check.

    7. Furnished Holiday Lets (FHLs) Cessation

    FHLs now have the same tax treatment as assured longer term lettings.

    Tax losses from your FHLs can be brought forward and offset against future property profits. However, tax reliefs such as capital allowances are more restricted and the split of profits between joint spouse owners require a formalised approach.

    Review your property ownerships, who should own what percentage and your repair and refurbishment plans,  ensuring you implement your requirements correctly and in good time. For example, HMRC needs to be notified promptly if you want rental profits to be allocated between you and your spouse in certain way, otherwise your will each be taxed 50:50 which may not be optimal.

    8. Non-Domiciled Tax Changes

    The changes are the biggest for many years. If you are UK tax resident but not a UK domicile, known as a ‘Non-Dom’, take specialist advice on the implications for you. Your income tax, capital gains and inheritance tax may all be affected.

    9. Tax Returns Additional Information

    Sole traders will be required to include the date you started or ceased your business. Understand the implications of the dates you use, because these dates affect your registration date with HMRC and your loss reliefs or capital allowances claims, but the date can be debateable. For example, when did you really start your business? During a marketing phase, when you contacted potential clients or when you raised your first invoice? It depends on the whole picture.

    Shareholder-directors now need to provide details of your shareholding in your company such as percentage shareholding, company name and registered number. Make sure your dividends always agree with the amount in your company accounts.

    10. Interest Charged By HMRC Increased To 8.5%

    Be careful about underpaying your tax bills. The interest rate HMRC will charge you on underpaying your tax such as self assessment payments on account or your corporation tax is now 8.5%, which is pretty expensive. If you overpay tax, HMRC will pay you 3.5% which is better than most business accounts, but a 5% difference against the 8.5% charged on underpaid tax.

    Therefore, where there is some doubt about your final tax bill, you may wish to err on the side of overpaying rather than underpaying your tax.

     

    Each taxpayer is different and you should only act after being advised about all the financial impacts of your actions. 

  • #Budget2018 – Good for small businesses BUT….

    Relatively favourable to growing businesses:

    1. Capital allowances of 100% (AIA) will be available on all expenditure up to £1m from 1 January 2019 to 31 December 2020 up from £200k. Even the £200k isn’t spent by most growing business but if you need to invest heavily in capital equipment this is very welcome.
    2. Research and Development cash repayments will only be available for amounts up to 3x the PAYE/NI bill from April 2020. It will be important to ensure businesses make the maximum claim they can before April 2020.
    3. A new Structures and Buildings Allowance (SBA) of 2% will be introduced for all new commercial buildings contracts entered into on or after today. This might also be a small boost to the construction sector.
    4. The £3k Employer Annual Allowance saving Employer’s NI of up to £3k will only be available for employers with an Employer’s NI bill under £100k. So this is still available for most growing businesses.
    5. The new 2% Digital Service Tax (DST) from April 2020 will apply only to certain revenues over £25m. With corporation tax at 17% from the same date, this may be bearable even if you are affected.
    6. The £85k VAT threshold remains for now (but you can’t help feel it will go eventually).
    7. The early increase in the tax free personal allowance to £12,500 and the higher rate threshold to £50,000 a year early will help business owners save dividend tax when taking dividends from their companies. Above that, remember that Child Benefit starts to get taken away so £50,000 may be the threshold to work with for a few years. 

    Some adverse changes:

    1. The qualifying period to be eligible for capital gains tax Entrepreneurs Relief of 10% will increase from 12 months to 24 months from 6 April 2019. In practice, this may have limited application but remember to get your spouse in as an owner-officer sooner rather than later.
    2. IR35 extension to the Private sector from April 2020 might encourage good freelancers/consultants to work for smaller businesses, however, there aren’t so many contracts in that sector. A lot of freelancers will face a very high tax bill. There may be some moves for their clients to take them on as employees, but this doesn’t easily fit in with the idea of a flexible, enterprising Britain. Expect a lot of debate between client and freelancer when a new contract is negotiated!
    3. The tax treatment of work related training costs will not change. This is a blow for the self employed sole trader who suffers an unfair rule where some training costs are seen to be capital and not tax deductible.
    4. Many clients also own a property they rent out and the Principal Private Residence changes mean their capital gains tax bill of 18% or 28% when they sell the property will increase. This may bring forward some property disposals to ensure they exchange before April 2020.

    With many changes effective from 2020 will the Chancellor prove to have had 2020 vision on the strength of the UK economy?

     

  • Budget2016 – Restoring Localism Within A Global Economy

    Small businesses

    Corporation tax rate reduction from 20% to 17% in 2020/21

    This helps restore the balance from the new dividend tax although you’d need to earn £57k more annual taxable profit to recover the additional £1,700 annual dividend tax many are paying from this April.

    It might make other low tax jurisdictions look less attractive, such as Ireland, and encourage international companies to have more valuable taxable activity in the UK.

    Increased higher rate tax threshold to £45k from April 2017

    This has other implications such as on capital gains tax and the dividend tax rate, so is another way to offset the higher dividend tax you’re paying from April 2016.

    Increased tax if you borrow from your company from 25% to 32.5% from April 2016

    It may be worth considering whether you should take more dividends from your company before 6 April 2016 to clear any loans from your company. Paying 25% tax may be preferable to suffering 32.5% later until you do repay the loan. This is an area which has seen many recent changes and is a source of constant irritation to HMRC. With more tax at stake, it makes it more worthwhile for an Inspector to look into this area.

    IR35 changes for the public sector

    If you’re a service provider on longer term contracts with few clients, such as an IT contractor, the plan is to ask public sector clients to decide if you’re an employee in disguise. If they do, you might decide you prefer to work for the private sector. Surely this runs the risk of encouraging good suppliers to no longer work for the public sector. 

    Abolition of Class 2 national insurance from April 2018

    However, no mention of Class 4 national insurance, the real cost of being a sole trader or partner, so we’ll wait and see whether that needs to increase from 9%.

    Business rates and commercial SDLT reduction  

    This helps small retailers compete with the internet, although more so in the Northern and Midlands ‘power houses’ than in the South East.

    Encouraging investment from external investors

    An extension to entrepreneurs relief where new money is invested from tomorrow in an unquoted company and the shares are owned for at least 3 years from 6 April 2016, capital gains tax of only 10% will be due, as it is for many officers and employees.  

    Pensioners

    Reduced capital gains tax to 20% and 10% from April 2016 (except residential property)

    This may be the group most likely to benefit from the reduced capital gains tax. if you own shares in quoted companies or unquoted companies where you’re ineligible for entrepreneurs relief, you may now wish to consider selling these investments after this April.  

    Parents

    Sugar tax

    When children are mentioned Chancellors can get away with a lot but increased prices do also affect adults on low incomes. Introducing a sugar tax on drinks and keeping duty on beer the same may have the unintended consequence of making alcoholic drinks look relatively more attractive! 

    Lifetime ISAs

    A possible alternative or complement to normal pension savings. Together with pensions auto enrolment, ‘putting the next generation first’ may turn out to be true.

    For those on low incomes benefiting more proportionately from tax free personal allowances, combined with saving (possibly with parents’ cash) in a lifetime ISA which receives a 25% uplift from the government, may be a very welcome mix of valuable government subsidy.

     

    This trend of appealing to the many rather than the few, may turn out to be a successful strategy for the Chancellor. It may also help grow the economy as long as the new dividend tax doesn’t increase any further.

     

     

  • #Budget2015 – Sugar and Spice and All Things Simplification?

    Sugar

    Pensions, ISAs and Savings again featuring as good things deserving of encouragement and flexibility.

    If, despite the increased cash ISA thresholds, you still have some interest in a normal bank account, from April 2016 you can earn up to £16,800 and not pay any tax on the interest you earn. If you earn more than this and less than £42,700, interest over £1,000 is taxed. Therefore if you earn £1,500 of interest you have a mixed picture of £1,000 not taxed and £500 taxed which could result in too little or too much tax paid. This may be more easy to deal with in the proposed new digital tax accounts announced today – see Simplification below.

    The AIA 100% tax relief for capital investment will continue to be generous covering most small business capital expenditure requirements.

    Spice

    The large pension pots threshold subject to tax is falling to £1m. This equates to 25 years of paying the new maximum £40,000 current tax free contribution threshold, ignoring investment returns. Therefore, if you pay the maximum for most of your working life you’re likely to exceed the new threshold. 

    With Entrepreneurs Relief potentially worth £1.8m of tax during a taxpayer’s lifetime, it’s perhaps inevitable the Government needs to tie up perceived loopholes. Today, these were identified as property used in a business but owned personally benefiting from the 10% tax that now require a 5% share disposal at the same time. And those having an indirect holding in a trading group through a joint venture or partnership must also own 5% of the trading entity.

    With higher tax free income tax personal allowances, more Gift Aided donations are likely to be taxed on the donor. Donors who don’t pay income tax need to know not to Gift Aid their donations as they make them.

    Simplification

    We all thought RTI was a way of making sure benefits paid are as accurate as possible. It now seems it was the groundwork for major reporting and tax online simplifications.

    Digital tax statements are proposed for many taxpayers by pre-populating an online record with PAYE income, bank interest, pensions for the taxpayer to disagree or agree with. HMRC’s record in similar areas isn’t 100% accuracy so taxpayer checking is highly recommended.

    Partnerships can’t currently file online using HMRC software, so presumably they won’t be included in this simplification.

    Accounting information from software could be directly fed into HMRC’s digital portal so HMRC can populate your tax record during the tax year. This might fit in with VAT cash accounting and small businesses who choose to cash account. They will have most value if the end result can be fed in, after the agent has reviewed the records and included any other claims. For businesses with losses, claims would still need to be considered and made by the taxpayer. Perhaps another area for simplification later on?

    Class 2 NICs are the mechanism for the self employed to get a credit towards the build up of their state pension. By abolishing Class 2 NICs there will need to be another route, presumably through the online digital form.

    Abolishing the need for PAYE Dispensations, taxing employment benefits through RTI, and allowing non-cash benefits of up to £50 per person to be made without any tax effect [EDIT: This hasn’t yet been legislated], are all very welcome administration savings for small businesses. 

    HMRC will look very different in a few years time where most staff will need to be focussed on being helpline/online friendly, rather than exchanging polite hard copy letters. 

     

     

     

     

     

  • #Tax Myth 11 – The Tax System Doesn’t Support Marriage

    Marriage and civil partnerships are provided with many reliefs within the tax system and I’m surprised why people claim otherwise.

    Business Partnerships

    Where one spouse is a partner, it’s very often the case that their spouse gets involved in the business later on, for example, a wife decides to stay at home when the children are young and instead of working for a third party, helps out in her husband’s business.

    If the other partners agree, his wife could be admitted to the partnership by taking half of her husband’s share.

    As each spouse enjoys two tax free personal allowances, for a higher rate taxpayer this saves £3,776 of income tax within the personal allowance, and 20% of tax on income above £9,440 and less than £32,010, a maximum of £8,290. Plus a maximum saving of Class 4 National Insurance @ 9% of £3,730.

    Ordinarily, the disposal of the husband’s partnership share would create a capital gain.

    However, where this asset is gifted to his wife, there is no capital gain, so there is no tax downside to the change in partnership share.

    Limited Companies

    A not dissimilar arrangement might be suitable for your limited company. In this case, the sale of some or all of your shares to your spouse will not trigger a tax charge on you.

    Whereas, if you’d given your shares to your non-married partner, a capital gain might arise. You could both defer this capital gain if you sign a ‘holdover’ election, but you’d need to understand it and complete it within the deadline.

    Similarly giving shares to a spouse for no tax effect, enables you both to own the minimum 5% required to receive entrepreneurs relief on the sale of your unquoted company,  doubling up the maximum relief on lifetime gains from £10m to gains of £20m, potentially saving capital gains tax of £1.8m being £10m @ (28% – 10%)!

    Other Assets eg Quoted Shares

    Where you have built up a portfolio of shares which, we hope!, eventually make a profit, this is subject to capital gains tax. If your gain is more than the tax free annual exemption of £10,900, you’ll pay either 18% or 28% of capital gains tax.

    Before you sell these shares, you can give some to your spouse who can sell them later on and use a second tax free annual exemption, saving up to £3,052 of capital gains tax. And if your spouse is a basic rate taxpayer, you may save an additional 10% (28% – 18%) capital gains tax worth up to £3,201.

    Inheritance Tax

    I suspect this affects more people than any other measure. If you own a home as a single person or within an unmarried couple worth £650,000, your estate may suffer £130,000 of inheritance tax on your death. If, however, you are married, there is no inheritance tax due when either, or both, of you die.

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