New research from unbiased.co.uk reveals that SMEs could be at risk of wasting £4.2 billion in unnecessary National Insurance payments on their profits by not considering changing their business model to that of an incorporated business.
Owners of unincorporated small businesses are self-employed and when their earnings reach a certain threshold they need to pay National Insurance contributions as a percentage of the business’s annual taxable profits. These National Insurance contributions could be avoided by incorporating the business and taking a small salary up to the threshold at which National Insurance is payable, then taking the balance of post-tax profits as dividends, which are taxed at a lower rate.
Karen Barrett, chief executive of unbiased.co.uk commented: “Tax is a vast and complex subject and business owners often simply do not have the time to understand how to optimise their tax status whilst also running their business day to day. A professional adviser can help you to understand your business’s tax liabilities, make sure you are using any tax breaks available to you and assist you in keeping up to speed on the impact of potential changes to current tax rules for you and your business. They can also free up your time, allowing you to focus on what you do best – running your business”.
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