To shut down my small business because Scottish income tax rates are too high

Pavementworrier · 2025-12-31T08:44:40+00:00

I work full time as an employee and run my business in my spare time. I do love it, if provides an important service, I give preferential rates to those who would struggle to pay otherwise. But I'm keeping less than half of what the business makes after tax (and I'm lucky because I don't need physical premises - if I did I'd be close to literally paying to work). I will feel sad to shut it down as it's become part of me over the years and I do think it adds to my community but I'm at the end of my rope at this point. If public services were good I'd feel very differently but they're awful and the government reliably steers money away from them to put into the wrong things Maybe I should just move to Dubai (only joking - but I can see why people do and that's depressing as well - we need to break the bloody cycle)

Mistletoeiggi · 31/12/2025 10:25

So you're earning over £100,000?

Soporalt · 31/12/2025 10:21

Here we have a perfect example of the Laffer curve in real life. After a tipping point people adjust their behaviour. In this case (and in mine a few years ago) they work less because they judge the net gain for their work to be too low. They’d rather do others things with their time. The result is less productivity for the country, and less tax for the Exchequer.

Jellycatspyjamas · 31/12/2025 10:13

Jappled · 31/12/2025 10:00

A small point but arguably the education system in England is better (which certainly wasn't always the case). The systems are really quite different and there are considerable issues with the Curriculum for Excellence and have been since its inception. It's just one of those things I imagine the majority of English people don't know anything about. Same with NHS waiting times. In England, you don't hear about Scottish issues in the media. A lot of people don't even know the tax rates are different.

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I’m in Scotland, with kids in school so fully understand the issues with Curriculum for Excellence. I also have extended family living in England with kids in school. The issues in both nations are different but neither system seems to be working particularly well.

TheCompactPussycat · 31/12/2025 10:10

Pavementworrier · 31/12/2025 09:33

I already work full time. The business added to productivity and provided a useful service. I can't justify working this hard to get almost nothing back.

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So don't. Let someone else who is happy to work for that level of financial gain take over the gap in the market.

It's your choice to work or not. If you don't think it's worth it, then don't do it. You don't need sympathy for deciding something isn't worth your time any more.

Jappled · 31/12/2025 10:00

Jellycatspyjamas · 31/12/2025 09:55

But then you have higher housing costs, water rates, tuition fees for uni (if that applies), prescription fees, no better education system for workers coming through, no better health service. You’ll still be out of pocket with no better public services.

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A small point but arguably the education system in England is better (which certainly wasn't always the case). The systems are really quite different and there are considerable issues with the Curriculum for Excellence and have been since its inception. It's just one of those things I imagine the majority of English people don't know anything about. Same with NHS waiting times. In England, you don't hear about Scottish issues in the media. A lot of people don't even know the tax rates are different.

UptoYou · 31/12/2025 09:59

Why don't you set your business up as a limited company and then only pay ~20% corporation tax? If you don't pay yourself a salary and take dividends instead each year surely this is much more tax efficient?

Jellycatspyjamas · 31/12/2025 09:55

Pavementworrier · 31/12/2025 09:48

It would save me thousands a year. Obviously I would prefer to improve things where I live.

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But then you have higher housing costs, water rates, tuition fees for uni (if that applies), prescription fees, no better education system for workers coming through, no better health service. You’ll still be out of pocket with no better public services.

Jellycatspyjamas · 31/12/2025 09:52

Pavementworrier · 31/12/2025 09:38

And I do feel really ripped off by public services in Scotland - the government puts money in temporary measures that keep people dependent on the state while starving core services

I’m a strong critic of the Scottish government but I’m not sure that’s entirely fair. There is a much stronger social safety net in Scotland, which has seen a real reduction in child poverty, which I think is a worthwhile use of public funds. Over dependence on the state is an issue across the whole of the UK, but none seems to have an answer to that, it’s not Scotland specific.

Scottishskifun · 31/12/2025 09:52

I would explore options with a decent accountant there are ways to set up which will lower tax rates.

Original poster

Pavementworrier · 31/12/2025 09:48

AgnesX · 31/12/2025 09:47

Can you move to England. There's your solution 🙄

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It would save me thousands a year. Obviously I would prefer to improve things where I live.

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Original poster

Pavementworrier · 31/12/2025 09:47

randomchap · 31/12/2025 09:44

So just a whinge about how tax is spent then

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A "whinge" about how appallingly the economy is managed. If I get sick I'm screwed - I will be on a waiting list for months or years. Kids coming into work haven't been taught key skills in school so my day job is much more stressful.

I am trying to contribute in various ways and I'm just punished for it.

You're not the good guy for accepting it, you're defending a model that is keeping people poor and miserable.

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AgnesX · 31/12/2025 09:47

Pavementworrier · 31/12/2025 09:38

And I do feel really ripped off by public services in Scotland - the government puts money in temporary measures that keep people dependent on the state while starving core services

Can you move to England. There's your solution 🙄

GargoylesofBeelzebub · 31/12/2025 09:47

Chemenger · 31/12/2025 08:51

So instead of keeping ~55% (I don’t know what the tax rate is) of your additional income you would prefer none? Fair enough.

It’s 67.5% at certain levels. She already works full time. I think many people would rather have the free time than work to give that percentage away to the government.

The free time would certainly be more valuable to me.

Having said that OP there must be more tax efficiencies available to you.

Jellycatspyjamas · 31/12/2025 09:46

I found it really helpful to chat to an accountant, I do tax through self assessment but the accountant has been good at helping me identify tax deductions. My DH is an accountant (so it’s easy and free to get his advice) he says a good accountant should save you at least as much as their fee. Depending on the profit it may be a cost too far but it can help.

But yes, it’s natural to think you should see a financial return for your labour.

I know you said you charge a lower fee for people who wouldn’t otherwise afford your service. I have two spaces in my service for people who can’t afford full price. If someone ask and those spaces are free I’ll give them one, if not I’ll explain I can offer the service but they’ll be on a waiting list until a low cost space is free. I also structure my fees so they’re high enough to carry the low cost spaces. If you don’t have a structure in place there’s a danger no one pays the full cost and the business becomes untenable anyway.

Dancingsquirrels · 31/12/2025 09:45

Several people have asked whether you have an accountant

In Scotland we have eg no university fees and free personal / nursing care. All of this has to be funded somehow

Most people i know don't mind paying additional taxes to fund public services

I agree lots of things feel a bit broken st the moment but I feel that we're still coming out of brexit and covid. Brighter days ahead, I hope

randomchap · 31/12/2025 09:44

Pavementworrier · 31/12/2025 09:38

And I do feel really ripped off by public services in Scotland - the government puts money in temporary measures that keep people dependent on the state while starving core services

So just a whinge about how tax is spent then

Original poster

Pavementworrier · 31/12/2025 09:42

Parcell · 31/12/2025 09:35

OK so you work full time and have a side hustle? I
am assuming you pay tax at the higher rate.

It is still extra income. I also have a side hustle but I do a minimal amount of work, since moving into the 40% tax band in my main job, to stay within the £1000 allowance.

Are you deducting the expenses used to generate the profits in your side business. Are you entering your charity donations into your Self Assessment (to increase the amount of tax at the lower band) etc.

It’s not just ‘business owners, it’s everyone that pays tax. I still remind myself that it’s much money than I would have had otherwise, despite the tax.

Yes but if you're working constantly for a few hundred extra quid a month it's just not worth it.

Top tax in Scotland is 48% (then NICs).

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Original poster

Pavementworrier · 31/12/2025 09:40

mindutopia · 31/12/2025 09:37

It sounds like you need to run your business more efficiently. You’re never going to be able to properly scale up a side hustle while working a FT job in your prime hours.

We are in England and run a limited company, and it is very worthwhile. It’s meant we have a very comfortable life and draw an income that is significantly higher than it would be in employment plus the tax benefits and protection afforded by a limited company.

It depends on your business and your work. I don't have customers in the 9 to 5 sense, they come to me and I send them a package. There's little headroom above what I do and I'd have to make the business a lot more successful to match my earned income, which doesn't feel realistic.

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Original poster

Pavementworrier · 31/12/2025 09:38

And I do feel really ripped off by public services in Scotland - the government puts money in temporary measures that keep people dependent on the state while starving core services

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mindutopia · 31/12/2025 09:37

It sounds like you need to run your business more efficiently. You’re never going to be able to properly scale up a side hustle while working a FT job in your prime hours.

We are in England and run a limited company, and it is very worthwhile. It’s meant we have a very comfortable life and draw an income that is significantly higher than it would be in employment plus the tax benefits and protection afforded by a limited company.

Original poster

Pavementworrier · 31/12/2025 09:37

Jellycatspyjamas · 31/12/2025 09:03

I’m in the same position in that I work in a well paid role and run a small business. There are ways to lower your tax burden, are you recording all your business costs, registration, travel and any CPD costs? If you’re working from home do you include the tax free allowance? Are your fees set at a reasonable level which accounts for your tax burden, can you make pension contributions to lessen your tax?

At the end of the day there’s a much more visible link to the tax you pay when it’s your own business when you see half your hourly rate set aside for tax. I do also think that I can’t complain about poor public services while avoiding paying tax - I’m happy to pay my due despite higher tax rates in Scotland.

It’s important to look at the wider benefits of your work too - the skills and experience you gain, the contribution to society, the security of having a safety net if something happens to your main employment. I keep my small business because it gives me an important element of work that I know don’t get in my day job. I’d miss that hugely and the practical experience is invaluable in my day job, which is more strategic.

Thanks - I agree with all of this and as you say it REALLY drives home how heavily labour is taxed when you run your own business. I have no idea how people who operate in the more heavily regulated and low margin sectors (like hospitality where you also have to be endlessly nice to the customers and deal with the madness of online ratings!) manage.

I will do one more review of options but the downside of my low operating costs model is that there's also relatively little to leverage

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Parcell · 31/12/2025 09:35

OK so you work full time and have a side hustle? I
am assuming you pay tax at the higher rate.

It is still extra income. I also have a side hustle but I do a minimal amount of work, since moving into the 40% tax band in my main job, to stay within the £1000 allowance.

Are you deducting the expenses used to generate the profits in your side business. Are you entering your charity donations into your Self Assessment (to increase the amount of tax at the lower band) etc.

It’s not just ‘business owners, it’s everyone that pays tax. I still remind myself that it’s much money than I would have had otherwise, despite the tax.

Original poster

Pavementworrier · 31/12/2025 09:34

And absolutely no one is going to fill the vacuum because it's simply not worth it. So instead of growing, maybe taking on staff next year, it's just a dead end.

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Original poster

Pavementworrier · 31/12/2025 09:33

TheCompactPussycat · 31/12/2025 09:03

Yes. Shut it down and then you can keep zero of what the business makes after tax. That's a far better idea. Someone with more determination can fill the vacuum.

I already work full time. The business added to productivity and provided a useful service. I can't justify working this hard to get almost nothing back.

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ElectoralControversy · 31/12/2025 09:29

I suppose it depends why you're running the business in the first place?

If you can afford to shut it down and lose the income altogether then you clearly don't need the money, so are there less tangible reasons why you're doing it? Are they still valid?