Why give the tax man more than you are required to pay???
Extracting maximum value from your company in the most tax efficient way possible should be your highest priority...
In this blog we are going to cover a few methods and an example of how you can extract value out of your business and keep it in your family.
You can consider giving shares to your family members so for one they can be involved within the family business however the bigger benefit is that you can now claim an additional £2,000 out of your company tax free. This is called the Dividends Allowance.
For those in business, especially in family companies, there is the desire to give share capital to your children (under 18), so that they can take dividends. What you need to watch out for is the parental arrangements.
There is no legal ruling which states that you cannot make your children shareholders in your limited company. However, if your children are under 18, any gross income above £100 they receive from the shares is taxable and as they are legally classed as minors their tax liability passes onto as their parents.
So, if you are looking to reduce your tax liability immediately, giving your shares to children under 18 is not advisable however it is good future planning!
2. Employing Your Children
Employing your children to work in your business is definitely an option. It gives your children some extra pocket money while you receive corporation tax relief.
Their salary however MUST be justified for the work they are doing. If HMRC suspects that you are paying your child a salary to avoid paying tax, they can apply the income shifting rules, which means the child's salary will be taxed as though it is yours!
There is a limit on the number of hours children can work! During the holidays, 13-14 years olds can work up to 25 hours per week, and 15-16 years olds can work up to 35 hours per week.
During term time, any child age 13 - 16 is limited to working a maximum of 12 hours per week.
Your local council may require you to apply for a child employment permit before you employ a child. Normal employment rules will apply.
If you are looking to get your family involved within the business, there can multiple benefits to help you, them and the business!
An example of what you could do:
Allow your son/daughter to work full time once they leave school running your social media accounts. You can pay an agreed set amount of money that the business can afford plus a small pension, small electric car and all associated running costs - insurances, charging point, repairs and maintenance - mobile phone, camera equipment bought by the business, trivial benefits, snack and lunch benefits and if needed, a tax free loan!
This is just a small example of the things you could be doing in order to keep your money in the family and as tax efficient as possible!
We believe in supporting our clients in the best way possible and this means their family too! If we see a tax opportunity available we make sure our clients know about it. If you are not having these discussions with your accountant/tax advisor we would highly recommend speaking to Saint Financial Group today.
This article was written for Construction Insider and Saint Financial Group. Saint is 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 all 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!