Entrepreneurs Tax

As an entrepreneur, understanding the tax landscape is crucial to ensuring your business thrives while minimising tax liabilities. Entrepreneurs’ tax refers to the various tax reliefs, rates, and allowances available to business owners, particularly those running small businesses or startups. These reliefs can significantly reduce the amount of tax paid on profits, sales, and business assets.

This article will explore the key elements of entrepreneurs’ tax in the UK, including tax relief for entrepreneurs, business tax rates, and key tax incentives available, with a focus on optimising your tax strategy.

Entrepreneurs’ tax encompasses the tax rules, rates, and reliefs available to business owners who actively manage or own a business in the UK. It includes taxation on profits, capital gains, dividends, and business disposals. For entrepreneurs, the most notable tax reliefs include Business Asset Disposal Relief (BADR), R&D tax credits, Annual Investment Allowance (AIA), and Employment Allowance. Tax relief schemes are specifically designed to encourage entrepreneurship, investment in innovation, and business growth. Understanding these reliefs will help you make informed decisions that maximise profitability and minimise tax exposure understanding your business assets, we’ll be able to inform you as to whether you qualify.   

Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) is one of the most important tax reliefs for business owners. It provides entrepreneurs with the opportunity to pay Capital Gains Tax (CGT) at a reduced rate.  This reduced rate is 14% from 6 April 2025 which is due to change to 18% from 6 April 2026. It is available on qualifying gains when disposing of business assets, such as the sale of shares or a business. Currently, the lifetime limit for BADR is £1 million. This means you can claim relief on up to £1 million of qualifying gains over the course of your lifetime.

More information on Business Asset Disposal Relief can be found here.

Entrepreneurs who invest in innovation can take advantage of R&D tax credits, which provide tax relief for businesses engaging in research and development. This scheme is designed to encourage companies to invest in innovative processes, products, and services.

The rate of R&D tax credit which can be claimed depends upon the accounting period to which it relates. For accounting periods from 1 April 2024 a new merged scheme was introduced, although for prior accounting periods, two sperate schemes still exist.

Entrepreneurs should consult with a tax advisor to ensure they are maximising the potential of these reliefs, particularly if they are heavily involved in innovation.

More information on Research and Development Tax Credits can be found here.

The Annual Investment Allowance (AIA) allows businesses to deduct the full cost of qualifying plant and machinery in the year of purchase, rather than over several years. For entrepreneurs, this can offer immediate tax relief on investments made in business assets like equipment, vehicles, and machinery.

A Family Investment Company (FIC) is one that invests rather than trades. These investments are typically likely to be equity portfolios or property. It is set up by a founder, transferring cash or assets, typically by way of a loan.

FIC profits are taxed at corporation tax rates rather than being taxed on income or capital gains. This can create significant savings, compared to what an individual would pay, especially if they would be paying the additional rate of tax.

Family Investment Companies also provide inheritance tax benefits, making it an excellent alternative to the more traditional Trust arrangement.

Further Information on Family Investment Companies can be found here.

The Employment Allowance is another important tax relief for UK entrepreneurs. It provides businesses with a reduction in their National Insurance contributions, which can help lower the overall tax bill.

Eligible Businesses are (from April 2025) eligible to claim up to £10,500 of employment costs each year. This is an increase form the previous level of £5,000.

Entrepreneurs can use this allowance to reduce the National Insurance contributions for employees, particularly helpful for small businesses that are growing and hiring new staff.

Understanding the available reliefs and taking proactive steps to plan your tax strategy can make a significant difference to your bottom line. Here are a few tips on minimising entrepreneurs’ tax:

Entrepreneurs’ tax in the UK offers various tax reliefs and allowances designed to reduce the tax burden for business owners. From Business Asset Disposal Relief (BADR) to R&D tax credits and Annual Investment Allowance, entrepreneurs can take advantage of these schemes to reduce their tax liability and maximise profits.

However, it’s important for entrepreneurs to stay informed of tax changes, including the reduction of the BADR lifetime limit in April 2025, and consult with tax professionals to ensure they are maximising all available reliefs. Strategic tax planning can make a significant difference to the financial health of your business and your personal wealth, ensuring your business remains competitive and tax-efficient in an ever-evolving tax environment.

Alexander & Co specialises in assisting entrepreneurs and owner managed businesses. We have been doing do for five decades.

For more information about our tax and accounting services for entrepreneurs, please fill out our contact form and one of our experts will be in touch. If you prefer, you can call us on 0161 832 4841 or email info@alexander.co.uk.

Business Asset Disposal Relief, formerly known as Entrepreneurs’ Relief, allows eligible business owners to (currently) pay a reduced 10% Capital Gains Tax rate on qualifying disposals, up to a lifetime limit of £1 million.

To qualify, you must have been an employee or office holder of the company for at least two years up to the date of sale. You also must own at least 5% of shares and voting rights. Also, the company must be a trading company or holding company of a trading group.

Key taxes for small businesses include Corporation Tax, Value Added Tax (VAT), National Insurance contributions, and business rates. Self-employed individuals also need to pay Income Tax through Self Assessment.

The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) offer tax reliefs to individuals investing in qualifying companies, including income tax relief and potential Capital Gains Tax exemptions.