Do you own and trade through a limited company? If yes, then here are the top 5 straightforward tips for either saving your company some Corporation Tax, or extracting money from the company tax efficiently.
Your company can make contributions towards your pension. The payments are deductible expenses for Corporation Tax purposes in the year they are made. A Small Self-Administered Scheme (SSAS) is a pension trust set up by a limited company or a partnership. SSASs are primarily set up by private and family run limited companies for the benefit of the owner directors and senior employees. SSAS is an occupational pension scheme set up under trust with up to 11 members. SSAS is particularly suitable for controlling directors.
One of the benefits of being a shareholder in a limited company is the ability to be receive dividends. Dividends are taxed at a lower rate than other kinds of income and do not attract a National Insurance liability.
Your company must have sufficient retained profits in order to pay any dividends and the correct paperwork must be completed and declared properly in accordance with company law requirements. We can help you with this.
3. Entrepreneur’s Relief
Subject to eligibility (e.g. you must have held shares in the company and been a director or employee for a year or more), you may qualify for Entrepreneurs’ Relief on the sale of your limited company. The current ER rate is a mere 10%, compared to standard CGT rates of 18% or 28% (higher rate).
4. Family Members
You may consider splitting your shareholding with your spouse, as you could benefit from using your other half’s tax allowance (especially if they have no other source of income). You should consult an accountant before considering this option, as so-called ‘income shifting’ is a thorny issue in accounting circles.
Also, if your family members help or work in the business too, then you can consider whether they should own shares in the company too. That way you can take advantage of their basic rate allowance and pay dividends to them as well.
If you have children aged at least 13 who earn less than £7,956, and they help out in your business, then you can pay them a wage to reduce taxable profits. You can also pay your spouse or partner for any work they do in the business. We can advise you on the most tax efficient salary levels.
5. Company Cars
Have you considered whether the cars used in your business would be better owned personally? If you use a company car personally you will be taxed on the benefit-in-kind and the company will pay Class 1A National Insurance.
Owning the car personally will not attract the benefit in kind and mileage can be claimed at the approved rate of 45p/25p per mile. The right choice however will depend on the circumstances and the vehicle involved.
We can review your situation and advise whether it’s more tax efficient to own the vehicle yourself, or run it through your company.