Five Common Concerns About Tax and Business Ownership in the UK (And What You Can Do About Them)

Businesses across the UK are operating in what many commentators describe as a historically high-tax environment, and this understandably makes many owners nervous about how tax interacts with business structure, profit extraction, exits and succession. 

This article looks at five of the most common concerns we hear from clients about tax and business ownership, and sets out practical, lawful steps to manage risk and make confident decisions, whether you are running the business day to day, planning a sale, or thinking about succession. The focus is on clear, client-friendly guidance rather than political commentary, and is particularly relevant for owner-managed companies, SMEs and growing entrepreneurial businesses.

Understanding the UK’s “High-Tax” Environment

There is a lot of commentary about the UK currently having one of the highest overall tax burdens in recent decades, with total tax revenues representing a materially higher share of national income than in much of the post-war period. For business owners, this is felt most obviously through corporation tax, income tax, national insurance contributions and various transaction taxes, but the overall picture can easily become overwhelming without clear advice.

For companies with higher profits, corporation tax increased from 19 per cent to 25 per cent on profits above £250,000 from April 2023, although a lower rate still applies to smaller firms. The government has also experimented with reliefs such as full expensing for qualifying plant and machinery, which can significantly reduce the effective tax cost of investment in certain cases. Tax rates and reliefs can change, so it is always sensible to check the current rules or obtain specific advice before making major decisions. When clients say they are worried about “high tax”, they are often really worried about how the interaction of rates, reliefs and personal taxes affects their net position, rather than the headline rates alone.

    Concern 1: Is Owning a Business Still Worth It After Tax?

A very common perception is that once corporation tax, income tax and national insurance have all been taken into account, there is little point in running a business, particularly for owner-managed companies. Some commentators note that, depending on how income is taken and the level of earnings, in certain scenarios, once corporation tax, income tax and national insurance are combined, the overall tax burden can feel close to half of marginal profits, which can understandably feel discouraging.

However, it is important to distinguish between headline rates, marginal rates in specific income bands, and the actual effective rate that applies once reliefs, allowances and planning are factored in. Correctly using the dividend regime, employer pension contributions and the timing of bonus payments can make a substantial difference to what ends up in the owner’s pocket compared with a simple salary-only approach, and investment-focused reliefs such as full expensing can reduce the corporation tax paid on genuine growth-driving expenditure, even in a high-rate environment.

One practical step is to review your profit extraction strategy rather than focusing on the tax rate alone. Many owner-managers default to taking a high salary, paying standard PAYE and national insurance, and then feel the tax system is punishing them, when in practice a carefully balanced mix of salary, dividends, employer pension contributions and other benefits can significantly reduce the total tax burden while remaining fully compliant with HMRC rules. 

The right mix will always depend on your personal circumstances, the company’s finances and current tax rules, so tailored advice is important rather than relying on generic formulas. It is also worth using investment and capital allowances to support growth, since where corporation tax is higher for larger profits, structuring and timing investment in plant, machinery and technology to benefit from reliefs such as full expensing means well-planned investment reduces taxable profits while strengthening the business’s long-term value.

    Concern 2: Will Tax Take Most of the Proceeds if I Sell My Business?

Another major concern for founders and shareholders is how much tax they will pay on an exit, particularly where the sale involves complex consideration such as earn-outs, deferred payments or share-for-share exchanges. Many owners delay serious succession planning or sale discussions because they are worried about Capital Gains Tax, or about being taxed in ways they did not anticipate, for example where some of the consideration is later treated as employment income rather than a capital gain.

In reality, the tax treatment of sale proceeds depends on several factors, including whether the disposal qualifies for any reliefs, how the consideration is structured, and whether HMRC could view part of it as disguised remuneration. For earn-out arrangements, where part of the price is linked to future performance, there can be particular complexities around when the gain is recognised and how the right to future payments is valued. In broad terms, HMRC may treat the earn-out right itself as part of the consideration for the shares, with the precise timing and valuation affected by the structure of the deal and any elections made, so specialist tax input is usually required.

A sensible first step is to plan the tax and legal structure of the deal together. We regularly see heads of terms or share purchase agreements agreed with limited thought to tax, leaving sellers surprised by how and when they must pay Capital Gains Tax on the consideration, whereas involving legal and tax advisers early makes it far easier to structure earn-outs, deferred payments and share-for-share swaps so the documentation supports the intended tax treatment. In some cases, such as certain share-for-share exchanges or earn-out structures, it may also be possible and prudent to seek advance clearance from HMRC that the transaction is commercial rather than primarily tax-motivated, and while clearance is not a guarantee, it can provide valuable comfort in larger or more complex exits. HMRC is not obliged to grant clearance and may revisit matters later if circumstances change, so clearance should be seen as helpful comfort rather than a guarantee.

    Concern 3: Could Complex Tax Rules Lead to HMRC Challenge?

Business owners often worry that the complexity of the tax regime, and the interplay between corporate and personal taxes, increases the risk that they will inadvertently fall foul of HMRC. This concern extends beyond aggressive tax planning to routine matters such as how directors take money out of the business, how employee incentives are structured, and how related-party transactions are handled in group structures. Anything that looks like disguised remuneration, artificial deferral or contrived use of multiple entities can attract scrutiny, especially where significant amounts are involved.

Prioritising clear, commercial rationales and documentation makes a real difference here. HMRC is generally more comfortable where transactions and payments can be explained by genuine commercial drivers rather than purely tax-motivated arrangements, so board minutes, shareholder agreements and incentive plans should all record the commercial context. It is equally important to align legal and accounting treatment with tax advice, since a common source of risk is misalignment between what the legal documents say, how the accounting entries are recorded, and how the tax position is reported, so legal terms for earn-outs and other contingent consideration need to be clear enough for accountants to correctly value rights and report the timing of gains.

If any of these concerns sound familiar, it is worth having a short conversation before you make changes to how you extract profit, sell the business, or restructure, since early advice tends to widen your options rather than narrow them.

    Concern 4: “Tax Is Blocking My Succession and Retirement Plans”

For many owner-managed businesses, one of the biggest strategic questions is how to pass the business on in a way that is fair, tax-efficient and commercially robust, whether to family members, key employees or external buyers. The perceived tax impact of gifting shares, transferring ownership, or moving towards employee ownership can lead some owners to delay succession planning altogether.

Succession planning often raises questions about Capital Gains Tax, Inheritance Tax, and the treatment of different forms of consideration or incentives. The eventual tax position can depend heavily on factors such as share valuations, available reliefs and exemptions, and how ownership and control are structured over time. Separately, where employees or management are being brought into ownership there can be complex interactions with employment tax rules, and this is particularly true for employee ownership or management incentive structures, where the line between employment reward and genuine investment needs to be handled carefully.

Starting early and exploring multiple structures tends to produce the best outcomes. Succession planning is rarely a single event, it is more often a multi-stage process that may involve introducing shareholder agreements, creating different classes of shares, or using trust or employee ownership structures, and starting early makes it easier to weigh the tax implications of each option. A well-structured plan also balances control, value and tax efficiency, considering not just tax but who retains control, how value is shared, and how the business is protected operationally through the transition, using shareholder agreements, staged transfers and incentive arrangements to gradually transfer value while maintaining stability.

    Concern 5: “High Tax Means I Should Move or Dramatically Restructure”

In a high-tax conversation, some business owners start to consider relocating, using offshore entities, or radically restructuring their affairs to minimise UK exposure, worried that without complex structures they are at a competitive disadvantage. Cross-border structuring and relocation can be appropriate in some cases, but they also carry legal, regulatory and reputational risks, and for many SMEs the cost and administrative burden of complex structures outweighs the tax savings.

Before looking at offshore options, it is worth assessing whether your existing UK structure is genuinely inefficient, looking at how profits are extracted, how group entities interact, and whether available UK reliefs and allowances are properly utilised, since straightforward steps such as refining director reward structures or tidying intra-group arrangements can often improve the position without added complexity. It is also worth weighing the wider commercial and reputational factors, since decisions about relocation or aggressive tax structures should be assessed against client perception, regulatory relationships, financing needs and operational resilience, and businesses relying on public contracts or consumer trust may find the reputational cost outweighs any tax advantage. Well-designed group or cross-border structures can still be entirely legitimate where they have clear commercial purposes, but they should be approached with care and proper professional input.

Managing Day-to-Day Tax Concerns

Alongside these five major concerns, owners also raise day-to-day questions about director loan accounts, shareholder loans and related-party transactions, and whether to reinvest profit or distribute it. Ensuring that the way money flows between shareholders, directors and companies is documented, reflected in contracts or resolutions, and reported consistently across accounts and tax returns reduces the risk of misunderstandings, disputes or HMRC challenge. For example, director loan accounts used without proper documentation or timely repayment can give rise to additional tax charges or repayment obligations, so it is advisable to keep them under regular review with your accountant and solicitor.

Why Legal Advice Matters, Even When Your Accountant Is Involved

Most businesses sensibly rely on accountants for technical tax calculations and filings, but legal advice on the underlying documents is equally important. A well-drafted share purchase agreement, shareholders’ agreement or incentive plan not only reflects the agreed commercial terms, it also reduces the risk that tax authorities or courts interpret those arrangements in an unintended way, and gives your accountant a clear framework to work with.

The key trigger points for integrated legal and tax advice are before signing heads of terms for a sale, when changing how you or key staff are paid, and when planning succession or restructuring. Waiting until after documents are signed, or new structures are implemented, sharply limits the options for resolving unintended tax consequences.

FAQs 

Do I need a tax adviser as well as a solicitor?

 In most cases yes. Accountants and tax advisers handle the technical calculations and filings, while a solicitor drafts and negotiates the legal documents that need to reflect and support the intended tax treatment, and the two roles work best in tandem rather than in isolation.

Will restructuring my business automatically reduce my tax bill?

 Not necessarily. Restructuring can improve efficiency and reduce risk, but the value depends on your specific figures and objectives, and it should be driven by a genuine commercial rationale rather than undertaken purely to chase a tax saving. In some cases, poorly planned restructuring can increase complexity and cost without delivering any real tax benefit.

Is it too late to get advice if I have already received an offer to buy my business?

No, but the earlier you engage legal and tax advisers, the more options you generally have. Once heads of terms are signed, some structuring choices become harder or impossible to change. Even so, it is important to obtain advice before signing heads of terms or binding documents wherever possible.

Does using a holding company or multiple entities automatically look suspicious to HMRC?

 No. Group structures are common and legitimate, provided they are supported by clear commercial reasoning and consistent documentation. Problems tend to arise where the structure exists only to minimise tax with no underlying commercial purpose.

How Jonathan Lea Network Can Help

Jonathan Lea Network is a full-service SRA-regulated firm advising owner-managed and growing businesses across Sussex, the UK and internationally, and our corporate team regularly advises on mergers and acquisitions, earn-out and deferred consideration structures, business succession, and shareholder and director arrangements, working alongside specialist tax advisers rather than in place of them. 

We focus on the legal and structural aspects and coordinate closely with your accountants or tax specialists for detailed calculations and filings. We do not promise to eliminate tax, but we do help you avoid costly mistakes, unnecessary disputes and unintended tax exposures, and approach decisions like exits and succession with clarity and confidence. If any of the concerns in this article resonate with you, it helps us to know whether your immediate priority is a potential sale, day-to-day profit extraction, or longer-term succession planning, so we can point you toward the right next step.

Contact Us

We will respond to most enquiries with both an indicative scope of work and fee estimate, as well as the offer of a complimentary 20-minute discovery video call to discuss your issues and how we can help, before sending a more considered formal fee estimate via email.

In some limited cases, if you would just like initial advice and guidance on a call, we may instead offer a fixed fee appointment (commonly charged between £280 and £500 + VAT) whereby we will review the information you provide, hold a video call consultation and then follow up with an advisory email (as well as a fee estimate for any further work identified).

Please email wewillhelp@jonathanlea.net or call us on 01444 708640 as a first step. We first need an overview of the background and your issues, together with any significant documents, to provide an indicative scope of work and fee estimate.

VAT is charged at 20%.

This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.