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

[Pavementworrier]

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)

So you're happy to lose that income? If the business is viable why don't you sell it instead of shutting it down?

Have you talked to an accountant about how to reduce your tax legally? Dividends etc?

It’s hugely frustrating but there are legitimate ways to limit your liability. Follow ‘accountant she’ on instagram

It's effectively your second job, so of course you're going to be highly taxed on additional income.

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

Surely if you needed premises that would count as a cost so wouldn't actually affect your tax load?

You have the same dilemma as anyone coming into the higher tax threshold and it's a privileged problem to have.

Sounds like you should be running your business through a company - much more tax efficient.

Are you PLC?

Do you mean am I incorporated? If so, no.

That's definitely not the case at the smaller end of the scale. Remember income is taxed twice with a company (assuming you extract profit).

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’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.

You need an accountant.

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?

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.

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.

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.

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

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.

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

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.

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).

So just a whinge about how tax is spent then

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

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.

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.