Page 14 - Budget 2021

….Or nothing at all?

For some business owners, the ultimate way to limit their tax bill is to choose to leave profits in the company rather
than draw them either as dividend or salary. With the top rate of income tax currently at 45% (46% in Scotland) - and
marginal rates potentially much higher - there is an obvious argument for allowing profits to stay within the company,
where the maximum tax rate is currently 19% and will not rise above an overall 25%.

This strategy has tax risks in terms of eligibility for business asset disposal relief and inheritance tax business property
relief. There is also a risk that reform to CGT could raise the tax rate, or even recharacterise accumulated profits as
income for tax purposes on liquidation or sale of the company. IHT reform might also have an impact. Money left in
the company is also money exposed to creditors, so professional advice should be sought before turning a business
into a money box.

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