Let’s face it, the small/family business director has not had an easy time of it lately. They put their heart, soul, sweat and money into their businesses and are the backbone of the economy, so we are told. These aren’t fat cats at the top of an empire; they are regular folk just trying to make a living. The average wage in the UK is £30,350* and a high percentage of our customers fall into the basic tax rate of up to £50,000. We think government support has been exceptional during this crisis and we want to challenge our customers to think about profit extraction in the ‘new normal’
Us Accountants get it wrong, most our clients don’t mind paying tax
Our UK system is crazy in that on a £30,000 salary a company director can pay anything from 17.5% to 27% in taxes depending on how you decide to take it out of the company. Why we don’t have a fair system where everyone pays the same I will never know. No wonder it divides us.
It’s fair to say that pre-covid19 almost of our customers were on a low salary and high (or whatever they could afford) dividend and since dividends have not been covered by Coronavirus Job Retention Scheme (CJRS) then many are left with 80% of a £12,500 salary. That’s even if they can furlough as many are still having to trade to keep the business alive at a much lower level. If you have been one of the ones caught out, we feel your pain. Almost all our customers say ‘I don’t mind paying tax’ similar to our own philosophy but everyone is different so we thought about ways we could help you arrive at ‘your comfortable’.
With the numbercrunchers, you decide the tax you pay
No-one saw the effect that Covid-19 was about to bring to the UK but if you had, would you have the same tax strategy now? or perhaps there is another way to think about it.
On tax affairs I have often heard people say ‘my accountant deals with that’ but how can we if we don’t know your values? We all have our personal stories, maybe a brilliant state education, a family member saved by the NHS or fire brigade, someone safeguarded by the police, and then does it match your views when your accountant assumes your mindset is ‘I want to pay the bare minimum to protect my state pension but not a penny more if I can avoid it’. Does it really matter if you CHOOSE to pay a bit more? This is up to you, we have always said don’t sweat the small stuff and yes if you want to pay a basic then that’s cool with us, we want you to have the right information to make your own decisions that suit you.
Firstly, think about your own thoughts about paying taxes, paying tax is NOT automatically ‘bad’ as they fund the things we like and need, things we can’t do without. You pay tax when you are doing well, we think how you spend it should really be up to you, we will guide but try not to interfere.
Use our TNC Director Fair Tax Calculator. As a small company director, it will factor in other tax contributions such as how many you employ (as don’t forget we pay 13.8% on top of any gross salaries we pay in Employers NI) as well as your own strategy on how much you take as salary and how much as dividend. Our scoring system awards points for creating jobs, paying more than the bare minimum, paying the same tax % as an employee, we hope it gives you a good steer on making your own decision. We have also had a guess at where your taxes will go and put the NHS at the top so you can see the difference your decisions will make!
Who knows if furlough will ever appear again but some of our customers are still choosing a higher salary, some stick to minimum but give more direct to charity, it’s not for us to decide and we won’t judge, of course we can tell you the most tax efficient way but is that what you want?
Download our fair tax calculator and find ‘your comfortable’
Not sure what to do, here is our guide on how to use it