Setting up multiple companies to separate business interests can seem very straight forward. There are however important considerations. We explore the implications of owning too many companies.
What is tax planning? Why Should I do it?
11 April 2024
Accounting & Compliance, Building a Business, Reducing Tax, Structuring a Business
On the face of it, this is simple, to get an idea of what your tax bill will be both personally and for your company come the year end.
But it is so much more than that!
Tax planning means maximising your personal income and wealth whilst aiming for the lowest tax liability possible.
From a company perspective we are looking at the most beneficial ways to lower the corporate tax bill.
So what really happens in a tax planning meeting?
In this meeting we build a broader picture of your current position.
We consider all angles and look at this objectively taking into consideration your future plans.
Your personal tax position
Firstly, lets take a look at your personal affairs, are you drawing money from your company efficiently?
We look at your overall remuneration package, what is the highest level of household income we can achieve for the lowest tax rate?
Although this is not an exhaustive list, here are some examples of what we are reviewing to make sure we are capitalising on every situation:
What is your spouse/partner’s income?
Are we able to bring them into the business and utilise their tax free allowances and basic rate band?
By having 2 people earning up to the basic rate band we can draw £100k out of the company whilst limiting our tax rates to a maximum of 20%
Do we need to consider child benefit?
Whilst the rules on child benefit repayments are currently changing, it can still be a significant additional bill to repay at the end of the tax year if too much money is drawn
Can we utilise CT61 interest?
There can be up to £6k of allowances available for interest, and the company is able to get tax relief on this as well giving a double hit on the tax savings!
Have trivial benefits been used?
This may only be a small benefit, however it is free money so why not take advantage!
What is the optimal salary?
Each year we take a look at this to determine what the best salary is on a client by client basis to make the most tax efficient decision.
Company Tax Planning
For the company affairs, we want to be taking a look at what ways we can reduce the tax bill which either make business sense or benefit you personally.
A lot of this will largely come down to the finances of the business, the business needs and your plans for the business.
We would take a look at some of the following:
Could you buy a company car?
Depending on the make and model of the vehicle, this could prove to be extremely tax efficient.
For example an electric car currently has a benefit rate of 2% for you personally and would give tax relief in the company
What could you put into a company pension?
A pension is a fantastic cost to put through your business.
This provides tax relief for your company whilst building your own personal pension pot for the future
Is it beneficial to replace your fleet/machinery now?
This was particularly relevant during the period where super deduction was available.
However even now it is relevant, with lead times ever increasing, we need to look at the timing of delivery to determine which tax year we will get the tax relief
Again this is not an exhaustive list but is designed to give a picture of the process we go through when looking at tax planning and the types of ideas we will bring to the table.
Protecting your legacy
Tax planning doesn’t have to stop there.
Have you considered later life planning?
We have a series of blogs written by our inheritance tax expert Jan Friend starting with Saving Inheritance Tax Through Gifting .
This series of blogs explores the benefits of inheritance tax planning and show how much money can be saved with a bit of planning in advance!
Our services
If you would like to find out more about some of our services that might help you please take a look at our related pages:
Blogs related to Tax planning
Take a look at our other blogs on the topic of declarations to HMRC:
Harnessing Hybrid Benefits for Company Car Drivers: Exploring Tax and BiK Implications
Want to reduce your corporation tax bill? A no-brainer!
The content in this blog is correct as at 11th April 2024. See terms and conditions.
