Simon Littlejohns, Partner and Head of Tax at Friend Partnership Limited, discusses the number of tax planning opportunities available to OMBs.
Owner managed companies have a number of tax planning opportunities which are not available to larger companies. This is particularly so with regard to equity participation and reward. It is well established that a payment of a dividend is a more tax efficient means of extracting profit from a company than say salary. This is important for the owner managers, their families and those who work for them.
Some available opportunities are:
- Tax efficient extraction of profit;
- Use of basic rate bands with “alphabet” shares for spouses and family members;
- Incentivisation of staff with tax efficient share options;
- Can selectively target and reward key individuals;
- Changing remuneration packages to maximise tax savings;
- Gifting shares where share valuation is low – start-ups for instance; and
- Capital Gains Tax savings with an onward sale.
Some issues to consider are:
- Share valuations;
- Shareholders’ agreements;
- Potential for ‘irritating’ minorities; and
- Good and bad leaver provisions.
All owner managed companies should be considering their shareholding structure. In most cases some very simple changes could make a material difference to the tax liabilities for those involved with the company.