32 Ways to Get the Maximum Value out of your Business
A question I get asked all the time is: ‘What can I take out of my business?’ and ‘how do I save more tax?’ Well, the quick answer is, ‘there’s up to 32 ways to get value out of your business, tax efficiently.’ Yep, that’s a lot of ways ⬇️
But the truth is, not all these 32 ways will be relevant to you and your business, and it’s likely that you’ll already be doing a few of them. But how do you know if you’re maximising every opportunity you could be, to improve your life, your families and your employees?
Well, we have a tax diagnostic review service that will do exactly that for you.
In our Value Extracting Tax Diagnostic review we will analyse your business and personal circumstances against the 32 ways, to identify all the ways you can tax efficiently put things through the business, or take value out of the business, benefitting you, your family and even your employees.
Every business owner can extract loads of value from their business, you just need to know what is relevant for you.
Find out more about our tax services & pricing here.
There are lots of exceptions that can make it sensible to take a lower or higher salary.
Your decision can impact pensions, national insurance, or even R&D. If you are involved in R&D it is generally better to take a higher salary as this can be apart of the R&D claim!
In 2021/22, the Personal Allowance is £12,570.
You only pay tax on the part of your income that is above the Personal Allowance threshold. So, if you earn £20,000 in a year, you’ll only pay income tax on £7,430 of it.
£20,000 (salary) – £12,570 (tax free Personal Allowance) = £7,430. The amount subject to income tax is £1,430.
For sole directors getting paid through their limited company’s payroll, the optimum director’s salary is £8,840 per annum (or £736.66 a month). This is because:
Eligible employers can use the Employment Allowance to claim up to £4,000 in order to cover the costs of employer’s National Insurance.
To be eligible, employers need to have at least 1 employee or 2 directors on the payroll, and the directors must not have another company that is claiming the Employment Allowance already (very important!). This means that sole directors can’t claim the allowance, which is why the optimum salary is a bit different for them.
Having 2 or more directors on the company payroll means that you’re eligible to claim the Employment Allowance.
The most efficient salary for 2 or more directors in 2021/22 is £797.33 per month.
The directors are able to take an annual salary at the primary threshold of £9,568 (or £797.33 per month) without incurring any NI.
For both salary types, it will be tax efficient to take the rest of your remuneration in the form of dividends.
After salary, the most commonly used method to take the remaining amount of desired cash from the company is via dividends. Dividends are often the most tax-efficient way of extracting money from your company.
To issue a dividend a meeting should be held with the directors of the company to 'declare' the dividend.
You should issue a dividend voucher for each dividend payment.
You can earn up to £2,000 in dividends tax free.
Further dividends will be taxed as follows:
Basic Rate - 7.5%
Higher Rate - 32.5%
Additional Rate - 38.1%
Consider employing a spouse/civil partner or family member so that the company can benefit from the additional resource, and the individual can use their personal allowances and lower level tax bands
If you receive dividends, you should consider giving some shares to your spouse/civil partner if they pay tax at a lower rate than you. When giving to other family your capital gains tax position should be considered.
There are some benefits that can result in significant cost savings. In the form of corporation tax, VAT, income tax and NIC
Where the company pays for pension advice to be provided to employees, it is tax free up to £500 in value
A director can be given up to £300 in ‘gifts’ annually, tax efficiently, provided certain conditions are met. Employees can be given up to £50.
The company can offer a car park space at or near the office to employees as a tax free benefit and also reclaim the VAT
Alongside the monthly cost savings, life insurance policy can also be written ‘into trust’ so that they are outside the scope of inheritance tax.
One mobile phone can be given to every employee in the business - including you and family members that are employed - and there is no tax or NIC regardless of whether the phone is used for personal calls, messaging etc.
Provided the cost per attendee is less than £150, an event for staff - for example at Christmas - is not taxable on the employees.
Workplace training can cover a wide range of areas that are wholly and exclusively for business purposes
Pensions can be a very tax efficient way to put money aside as you pay no income tax or national insurance when the money is paid in. The company also gets a corporation tax deduction on the money they pay in.
If you are considering purchasing an asset that will have a business use, you should consider if you can pay for it via the company
It can be tax efficient to hold an asset personally and rent it to the company… and in other circumstances.
Expenses of the business that have been paid for personally may be reimbursed by the company, and will be deductible against corporation tax. The rules can be complex with grey areas, so care needs to be taken.
Paying employees, who regularly work from home under a formal arrangement, £6 a week, £26 a month or £312 a year, requires no record keeping and the amount paid to the employee is tax free.
Where an employee uses their own car for business they can claim 45p for each business mile travelled up to 10,000 miles and 25p per mile thereafter, without income tax consequences
If an employee has a personal card that they use for business expenses, any points received from the reward card are not taxable on the employee.
If you incur the congestion charge whilst travelling using you Company Car, you can put the cost of the charge through the business.
You may pay substantial amounts in education costs, in terms of school or university fees for your family. Substantial tax savings can arise, due to the personal allowance and basic rate band, which are typically unused by children in education.
There are three areas of business travel to consider: travel to and from work, public transport and travel to a temporary workplace.
When staying away with work, visiting or entertaining clients, there are certain costs you can claim back.
If you are currently paying for a music, audio book or Amazon Prime Subscription, you should consider putting the cost of these subscriptions through the business
Other Tax Efficient Benefits
Provided all staff are offered the option, providing lunches to staff at the business premises is tax free to the employees, and the business can claim corporation tax relief and recover VAT (where relevant on the costs.)
There are three potential ways to held fund childcare in a tax efficient way
Bicycles and equipment can be purchased under a ‘salary sacrifice’ scheme so that the cost of the bike and equipment comes out of pay before being taxed
You can offer access to sports or recreation facilities, or non-cash vouchers which can only be used to access those facilities as a benefit, if they meet the criteria
The cost of charging electric vehicles at the place of employment is exempt from tax and NICs. It makes no difference who owns the car.
The tax on company cars has increased. However, there is one main exception - electric cars.
For companies providing car insurance - the increased cost will be deductible for corporation tax purposes, but no additional tax charge will arise on the employee.
There are two company car accessories you can purchase via your business which are completely tax free.
Whilst not ‘tax free’ or available as a ‘salary sacrifice’ scheme, your business can have other benefits from medical or critical illness cover… and more!
You may have lent money to the company, or have funds available to lend to the company. Or alternatively the company may have money it can lend to you or the employees. Some loans can be tax free.
If you’d like to review how much value you’re getting from your business, we’d love to speak to you, book in a call & let’s have a chat.
This article was written for Saint Financial Group, a multidisciplinary group based in the UK that helps construction businesses develop and grow. SaintFG offers a range of quality solutions in supporting businesses.
Saint provides the luxury of free business consultancy for of our clients, call now for your free consultation with a friendly business advisor to discuss your burning questions and put that energy back into your business!