tel: 07736 059877 email: info@lothianaccounting.com

2024-25 tax planning for owner-managed businesses

The Spring budget statement announced on 6 March 2024 was a bit of a shock for accountants due to some bold statements regarding national insurance cuts and abolition of furnished holiday let reliefs but without the detail needed to plan appropriately. Apart from the NI cuts which unfortunately do not extend to employer national insurance, there is no change in thresholds and reliefs which creates fiscal drag and brings more individuals into higher rate tax.

Living in Scotland is even more taxing (excuse the pun!) due to the introduction of a new rate of tax for high earners -Scotland’s ‘progressive’ tax system now has 6 rates of tax for us all to get our head around!

The two rates of tax for Corporate Tax remain and this is not good news for owners who have more than one limited company as this impact the thresholds for the small companies rate. The change in corporation tax rates remains an administrative burden on owner-managed companies and their accounting advisers.

It makes tax planning more complex as there are knock on effects in terms of different taxes (corporation, employment and personal tax) which advisers must explain to you .

Lothian Accounting uses a customised approach in terms of tax planning and will highlight opportunities for you to consider in terms of reducing the corporate tax burden and what impact this might have on your personal tax situation and PAYE/NI as well.

Key Tax changes from the Spring Statement affecting owner managed companies and sole traders

So what needs to be considered?

How can owner managers plan the most tax efficient strategy?

Sole director companies (company profits up to £50,000) 

Sole director plus employee(s)) (company profits up to £50,000)

Where the company has a sole director and shareholder but also has employees (earning above the secondary National Insurance threshold), the director should be remunerated with a £12,600 annual salary and further profits extracted by way of dividend, as long as the director does not have other income classed as earned income (which would be subject to the Scottish income tax rates).

As employment allowance is available, the National Insurance to pay will be employee NI only of £2.40 per employee paid at £12,600, plus the small amount of income tax as stated in the above section.

Companies owned by  multiple directors (or director plus employee(s)) and with profits over £50,000

For companies owned by two or more directors or companies with profits between £50,000 and £250,000, the more complex income tax system for Scotland and also the change in corporation tax rates from 1 April 2023 now means tax planning must be done specific to their particular personal circumstances.

Where a company is owned and managed by more than one director, existing sources of income (e.g. rental property, investment income) need to be considered for each specific director and, if relevant, their spouse and this may have an influence on how to set salary and dividend payments for the company for 2024-25.

Furnished Holiday Lets (FHL)

Key changes that will arise from 1 April 2025 as a result of abolishing the FHL scheme:

2024-25 Relevant Tax rates

A summary of relevant tax rates for Scottish registered companies in 2024-25 is shown below:

Personal allowance12,570
Scottish starter rate2,306 + personal allowance
Scottish intermediate rate threshold (for earned income not savings income)28,786 + starter rate & personal allowance = 43,662
Scottish advanced rate (for earned income not savings income)Total earnings between 75,000 and 125,140
UK-wide basic rate threshold (for savings income e.g. dividends)37,700 + personal allowance = 50,270
UK-wide top/additional rate threshold125,140
Higher income benefit chargeGross taxable income over £60,000
Class 1 & 4 National Insurance primary threshold and rates12,570 (8% Class 1, 6% Class 4 up to £50,270 profits & 2% over this amount)
Class 1 National Insurance secondary threshold (& employer National Insurance rate)9,100 (13.8%)
Dividend allowance –nil rate500
Dividend tax rate –basic8.75%
Dividend tax rate –higher rate33.75%
Dividend tax rate -additional rate (dividends over £125,140 if no other income)39.35%
Scottish starter tax rate (earnings up to £14,732) *19%
Scottish basic tax rate (earnings from £14,733 to £25,688) *20%
Scottish intermediate tax rate (earnings from £25,689 to £43,662) *21%
Scottish higher tax rate (earnings from £43,663 to £75,00042%
Scottish advanced tax rate (earnings from £75,001 to £125,400) *45%
Scottish top tax rate48%

* includes personal allowance of £12,570 on which no tax is paid. If earnings are above £100,000, the Personal Allowance will reuce by £1 for every £2 earned over £100,000.