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April Questions and Answers

Newsletter issue – April 2025

Q:I’m thinking about selling my business, which I’ve owned for five years. How will the upcoming tax changes affect me?

A:You’re right to identify there are relevant upcoming rule changes for people in your position.

These alterations mean people who sell their businesses will have to pay more tax than before. The reforms in question surround the Capital Gains Tax rate and Business Asset Disposal Relief.

The latter is effectively a special discount on tax for people who sell their businesses. Instead of paying a high tax rate, they get to pay a lower tax rate on up to £1 million of their profits.

From 6 April 2025, the CGT rate under BADR is increasing from 10% to 14% on the first £1 million of lifetime gains. This means you‘ll pay more tax when selling your business (assuming it qualifies under the rules). Part of eligibility is that you‘ve owned it for at least one year, which is clearly fine in your case.

It sounds like your business will count as a qualifying business. It has to be one that you own and run yourself and must be trading - i.e. it sells goods or services to make money. It can‘t just be for investment, like renting out property.

Some mixed-use businesses also qualify. That is to say, your business does both trading (selling goods or services) and providing rental income, like a shop with an apartment above it.

The thing you should bear in mind is that, although the rules are less favourable now than if you‘d sold, for example, a year ago, you face paying even more if you delay a year. If you delay beyond April 2026, the rate looks likely to rise even further, bringing it closer to standard CGT rates of 18% or 24% for higher earners. In fact, it has already been stated in the Budget that it will rise again in April 2026 to 18%. If you‘re considering a sale, it may be worth reviewing your plans now to take advantage of the lower rate before it increases. If you‘d like to discuss the matter further, please get in touch with our team.

Q:I’m a sole trader and currently paying 40% tax. My husband helps out with the business, but he’s a lower-rate taxpayer. We’re looking at ways we can reduce our overall tax bill. Can you give us any recommendations?

A: It’s certainly worth exploring what could be relevant here in terms of effective tax planning strategies.

Firstly, it would be beneficial to make your husband a partner. If your spouse or civil partner becomes a partner in your business, you can allocate some of the profits to them, potentially reducing the overall tax burden by using their lower tax rate. However, you must bear in mind that this should be a genuine business arrangement, and his share of profits should reflect his involvement in the business.

For anyone else reading this with similar questions, but operating a limited company rather than being a sole trader, it‘s perhaps worth mentioning that if your spouse is a lower-rate taxpayer, you could gift them shares. This could allow dividend income to be taxed at their lower rate. However, it‘s worth noting that HMRC may scrutinise this arrangement under the "settlements legislation" if the shares were given purely to divert income and avoid tax.

We should also consider that from April 2025, new rules will affect income allocation between spouses for jointly held property. While this doesn‘t directly impact business income, it highlights HMRC‘s ongoing focus on income splitting.

It‘s certainly worth delving into the details of your business and tax arrangements in greater depth with a professional before diving into making any changes. Please give our team a call if you‘d like to discuss this.

Q:I run a small business. Is there any way or means that I can pay PAYE less frequently to help with cash flow?

A: Yes, if your total monthly PAYE payments to HMRC are less than £1,500, you may be able to pay quarterly instead of monthly, which can help with cash flow.

However, this isn‘t automatic; you need to contact HMRC to arrange it. Keep in mind that even though payments are less frequent, you must still submit your payroll information on time under Real Time Information (RTI) rules. If your PAYE liability increases above £1,500 per month, HMRC may require you to switch back to monthly payments. It‘s worth calling the HMRC payments line to discuss this in full.