Tax Year Planning for High-Earning Business Owners
If you're a business owner taking home £70,000 or more, you're among the top 5% of UK income earners. This puts you in a unique position to make strategic financial decisions at the start of a new tax year.
Don't wait until next March to think about this year’s taxes. Starting your tax planning at the beginning of the financial year gives you a real advantage - you'll make better decisions without the pressure of looming deadlines, have time to properly structure your finances, and can maximise all available tax allowances. While others rush at the last minute, you'll be ahead of the game with a clear plan for your business's financial success. Taking action now means taking control of your financial future.
Key Tax Planning Strategies
For limited company directors: Consider the most tax-efficient mix of salary and dividends. As a result of tax changes in the last couple of years - both on personal and business taxes - it is worth reviewing the ratio of salary/dividends for profit extraction annually to ensure you are being tax efficient.
For sole traders: Evaluate whether incorporating could offer tax advantages, although based on tax alone, due to incorporation tax increase in April 2024, and the drop in employee’s national insurance contributions, moving to a limited company structure based on profit after expenses has been pushed out to around £150-100,000. The only sting in the tail is VAT registration, with the threshold now being £90,000, which will impact your cash flow on a quarterly basis.
Top Tip: If you are close to the £90K threshold over a 12 month rolling basis, going limited means you can effectively pause VAT, with the VAT threshold starting point beginning at zero from day of incorporation.
Savings and Investment Considerations
Many business owners face fluctuating incomes, making regular saving challenging.
Recent data shows that 47% of micro-businesses have less than £1,000 in savings, highlighting the importance of building financial reserves.
Emergency Fund Building
Maintain adequate cash reserves for business continuity. Here are some practical options on how to do this:
Set up automated transfers on good revenue days
Create a percentage-based saving system (e.g., 10-20% of each payment)
Establish separate business and personal emergency funds
Consider high-yield business savings accounts for better returns
Use tax-efficient savings vehicles like ISAs alongside business savings
Investment Strategy
Multiple investment options are available for business owners. Consider diversifying investments to spread risk. Some more ideas that can focus on your long-term wealth planning:
Business property investments
Equipment and technology upgrades
Market investments (stocks, bonds, funds)
Business expansion opportunities
Pension contributions (taking advantage of tax relief)
Business Growth Considerations
Remember that while £70,000 represents a significant income, business owners need to factor in tax obligations, future investment needs and market uncertainties.
Having a success planning framework involving quarterly performance reviews and annual strategic planning will keep you focused on your business growth plans.
