Pages

Thursday, 2 October 2014

Tax avoidance

I keep reading politicians rants about how companies wriggle around their obligations to pay tax.  But what's actually happening, is that politicians make laws that allow you to pay less tax. And then they whine about the laws they made? And they're surprised that people choose not to pay more tax than they are legally obliged to?

Here's how to pay tax at a rate of 10% on the first £10 million you earn.

It's called  entrepreneur's relief. And here's how it works.

You start up a business. It does OK. It does well! It does very well! But if you pay yourself a salary, that will be taxed at the current rate of income tax, which is 30%, or even 40%. So ... don't pay yourself a salary.

How about paying yourself a dividend? If you pay yourself £32,000 you pay 10% tax. If you pay yourself £150,000 you pay 32.5% tax. Now that's looking better. I have to say, though, that I find it strange that giving yourself money using two different nomenclatures, results in different tax rates.

Or even better - don't pay a salary, don't pay a dividend. Close the business. Then you make a capital gain. The first £11,000 is free from tax. After that, you pay between 18% and 28% tax.

But here's the best scheme. Here's how to pay tax at a rate of 10% on the first £10 million you earn.

It's called  entrepreneur's relief. And here's how it works. You must own at least 5% of the company for a year, and you must be a director, partner or employee. And then you pay 10% tax.

What on earth is the point of this law? All it does, is give away tax revenue that would otherwise be well-spent on MP's expenses. If you want to encourage entrepreneurs, then here's how - just get out of their way and let them do their thing. You don't actually have to encourage entrepreneurs, you just have to get rid of all the stupid rules that make their life difficult.

Of course, I'm not an accountant (I'm glad to say)! Maybe there's more to it that appears on the gov.uk web site. You should talk to your accountant and ask her about this.


No comments:

Post a Comment