How Mrs Brighton saved £13,500 per year in income tax by changing the share structure of her business

Shafiq Khan • 7 June 2023

Relatively new to running her own healthcare business, Mrs Brighton didn’t realise she was paying excessive amounts of income tax. She and her husband hoped to retire to their newly-built house in Africa, but money was slipping through the net that could have been going towards retirement.

 

Feeling frustrated about how much tax she was paying, Mrs Brighton sought our trusted accounting advice to shed some light on what was going on. We soon found a simple tweak could give her enormous savings.


As a new entrepreneur, Mrs Brighton wasn’t aware certain actions could have big tax implications.

 

After a career working as a nurse and caregiver, Mrs Brighton decided to switch her focus in 2018, setting up her own business providing high-quality in-home healthcare. It was soon generating good revenue, but this success wasn’t reflected in her take-home pay.

 

Unaware of the tax implications, she was drawing on company funds to make up her salary and dividends.

 

As an inexperienced business owner, it was an understandable mistake to assume the money earnt was hers. It was her company after all, so she believed she could take it as and when she pleased. However, it meant she wasn’t taking money out in the most tax-efficient way.

 

The way she accessed her salary triggered excessive amounts of tax to be paid. She needed to find a way of drawing money from the business while minimising tax exposure.


With the idea of retirement slipping further away with each tax payment, Mrs Brighton felt confused and deflated.

 

When she came to us, we sat down with Mrs Brighton and listened to her challenges and problems. It was understandable she was frustrated; she was putting long hours into the business, not just coordinating her team, but also doing a lot of the care work itself.

 

To examine where Mrs Brighton could save on income tax, we first had to lay the groundwork.

 

The financial health of a business can be thought of like a garden, with bookkeeping as the primary maintenance. Making sure you have clear, clean books is like cutting down the overgrowth, allowing you to then see where further work needs to be done.

 

In other words, only once your accounts are in order can you see what’s really going on in the business. After talking to Mrs Brighton, the first thing we did was introduce her to our bespoke Virtual Finance Office where we got her accounting systems and books cleaned up and up to date.


Her confusion transformed into confidence.

 

Now able to see the financial health of her business at any point in time, this newfound clarity over her business numbers gave Mrs Brighton peace of mind.

 

It meant she could make key decisions backed up by clear data; decisions which allowed her to free up her time.

 

Now it was time to examine how she could extract money from the business while paying minimal tax.


One change to the share structure gave colossal savings.

 

Discovering Mrs Brighton’s husband had a major role in the operations of the business, we advised her to gift half of her shares to Mr Brighton for the tax benefit it would provide.

 

The savings were drastic:

 

  • Mr and Mrs Brighton now paid £3,000 each in income tax. When they came to us, they were paying £16,500.

 

  • It meant a tax saving of £13,500 per year, giving at least £82,500 savings over the next 5 years.

 

In addition to paying her husband a modest salary, it meant Mr and Mrs Brighton could now extract £100,000 per annum and with paying a minimal level of income tax.

 

Mr and Mrs Brighton went from worrying about their retirement plans to feeling grateful and relieved.

 

Now reaping the rewards they deserve from their business, they have more income to spend on their retirement home and personal needs.

 

Before, Mrs Brighton felt stretched thin, spending most of her time working in the business instead of working on it. Now, she’s able to take a step back and make decisions that allow her to spend time doing what she does best.


You deserve trusted accounting support that gives you the same confidence and clarity.

 

Running a business is challenging, and even the best entrepreneurs make many mistakes along the way. Bringing on board trusted accounting support helps minimise those errors quickly, saving time, money and taking the weight of running a business off your shoulders.

 

As chartered tax advisors and accountants, we’re here to provide that expert support so you have time to prioritise the most important things in life.

 

Whether you’re working towards retirement or want to spend more time with family as your kids grow up, you deserve the freedom and time to spend where it matters most.

 

If you’d like to find out how our family-centred accounting could support your business, book your Business Breakthrough Session to get started.

Business woman in a yellow blouse working at a desk with a laptop and desktop monitor

How to File a Confirmation Statement for Companies House

by Shafiq Khan • 7 April 2025
Filing your limited company's Confirmation Statement? Our factual guide covers deadlines, costs, and requirements in simple, easy-to-follow steps.
Beautiful Asian young woman using laptop computer and open document to reference her work.

How to Switch from Sole Trader to Limited Company in the UK

by Shafiq Khan • 28 January 2025
If you’re thinking of making the switch from sole trader to a limited company then follow these 'simple' steps from our expert limited company accounting team to guarantee a smooth changeover. 1. Choose Your Company Name Choose a unique name for your limited company. Check that it isn’t already registered with Companies House to avoid any issues. The rules are different compared to that of a sole trader — you cannot have the same name as another limited company. 2. Register Your Limited Company You can register your limited company online through Companies House or with the help of an accountant. It is a straight forward process with most applications approved by Companies House within 24 hours. During registration, you will need: A registered office address (A registered office is a legal requirement for any UK limited company) at least one Standard Industrial Classification (SIC) code to describe the company’s main business activity. at least one director and one shareholder details of every person with significant control (PSC) articles of association (All UK limited companies require articles of association. The articles set out the rules for running the company, which must be abided by company directors at all times). 3. Set Up a Business Bank Account Open a separate business bank account for your limited company. This ensures that your business finances are kept distinct from your personal finances. As the money belongs to the company and not the directors, limited companies should have separate accounts in the company name. Even if your previous sole trader and limited company have the same business name, it is crucial that a new separate bank account is created in the company name, failure to do so could lead to nasty tax implications. 4. Inform HMRC Notify HMRC : Contact HMRC by calling their Self-Assessment helpline at 0300 200 3310 or send a letter. Inform them that you are no longer operating as a sole trader. File Your Final Self-Assessment Return : Submit the final self-assessment tax return for your sole trader business, marking it as the last year of trading. It is important to note that as a director of a limited company it is rather likely that you will be receiving salary and dividends from the limited company, therefore this would need to be reported on future self assessment tax returns and therefore you should not close down your self assessment account with HMRC when ceasing the sole trader business Register for Corporation Tax : After registering your limited company, HMRC will automatically register the company for Corporation Tax. 5. Register for Other Taxes As mentioned above, there is a strong likelihood that salaries will be paid from the limited company, therefore the company will need to register as an employer and set up PAYE. There may also be a need to register the company for VAT or transfer the existing VAT registration from the sole trader. 6. Transfer Assets and Liabilities Depending on your sole trader business, you may need to transfer assets such as, property, machinery, equipment, stock etc.) from your sole trader business to your limited company. Determine how to handle any outstanding debts, ensuring the transition is seamless. It is worth mentioning that transferring assets on incoporation can be a complicated process for some businesses and can have Capital Gains Tax (CGT) implications. We advise speaking to an expert accountant to avoid any costly issues. 7. Notify Your Customers and Suppliers Update your clients and suppliers about your change in business structure. Make sure to revise your invoices, contracts, and payment details to reflect your new company name and structure. 8. Update Your Insurance Review and update your business insurance policies to reflect your new limited company status. This may involve changing liability coverage or adjusting terms for employees. 9. Maintain Proper Accounting and Records Set up an accounting system that complies with company tax regulations. Keep detailed and accurate records to ensure you meet all legal obligations and file taxes on time. By following these steps, you can make a smooth transition from sole trader to limited company in the UK. If you want a reliable and expert accountant to assist you in this process, then get in touch with Bloom Accountants, we have decades of experience and specialise in limited company accounting, and can help you move from Sole Trader to Limited Company with ease.

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by Shafiq Khan • 27 July 2023
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