When I think about life, I think of a big open road. There are lots of places to see and things to do. Life’s really for the taking, so I plan to build up my business in a way that will allow me to do the things I really enjoy, like travelling and exploring. In order to do that, however, I need to keep my real-life number front of mind.

What is a ‘real-life number’, you might ask? It’s something every business owner should have. It’s the number that ties everything together, giving you the life you want now and in the future.

This is the number that can help take your business from where it is now to where you’d like to see it go. In order to achieve all this, you’ll need to understand your tax position and what you can do to make your business more tax-efficient.

Through knowing and really understanding my own real-life number, I've been able to drive business performance and achieve things like finding my forever home. And it’s how I am now working towards upgrading my motorhome so I can explore the rest of Scotland and Yorkshire in England and Wales.

I want to offer you an inside track on my business. I’m going to share some of the things I’m doing personally as part of my plan as well as some suggestions you may not know about to help you extract more money out of your business tax-efficiently.

 

Where my business is now

At the moment we’re a small but mighty team, but we’re now looking for an accountant to take on all the compliance work so I can focus on advisory-related work for my clients.

The business has been stable for some years now, and we’re going through a phase of growth. Looking forward, the focus is on offering more services across all client accounts. However, I have identified a bracket of clients who are ready for a different level of service beyond accounts production. These kinds of clients need more tax advice and consultancy-based services to support them through their business evolution.

 

Taking the Growth Tax Diagnostic Review

A service we’ve recently rolled out to customers is a Tax Diagnostic Review. I personally completed the Growing Business Tax Diagnostic on myself and ACG Accounting Services.

This review highlights all the tax advice, tax-saving opportunities, allowances, incentives, reliefs, everything applicable that you should consider for yourself and the business.

It’s using this service from which I have recently renewed my tax-efficient plan. The plan focuses on what I can do to build the value of the business in a controlled and sustainable way. It includes how I can reduce tax in the business now to improve its overall value and what I can put through or take out of the business to improve my life. At the same time, it offers me more certainty over what I can take out tax-efficiently for my future.

I’m going to share some of the things I do personally as part of my plan as well as some additional suggestions you can take action on for your own business.

 

What should I put through my business?

 

SALARY & DIVIDENDS

As a minimum, it’s key to ensure you are taking the tax-efficient salary amount from your business so that you still qualify for things like the state pension. Then, it’s best to take the remainder as dividends - at least the first £2k as this is tax-free. After that, it’s a basic rate of 7.5% up to the threshold of £50k.

Where you are employing family members, they can use their personal allowances and lower-level tax bands. It’s also worth thinking about giving shares to your family if they pay tax at a lower rate than you as they will be able to use their £2,000 tax-free allowance and any other lower rate bands from yours.

PENSION

I have a legacy pension from my previous old employment and a private pension. However, pensions can be a very tax-efficient way to put money aside via the business 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. As part of my plan, I’m looking to increase my contributions so I can really make my motorhome dreams come true.

A business might want to consider purchasing the offices from which the company operates and own them via a SSAS or SIPP. With a SIPP (self-invested personal pension), the pension owns the building, and the rent from the business is paid into the SIPP, which means you are making regular contributions into a pension.

£10K LOAN

Once you reach a stable point, a good tip to know is that certain individuals in the business can take up to a 10k tax-free loan from the business. If you are in this position, you could consider taking the £10K interest-free director loan to invest in a little pot for the future.

COMPANY CARS

I'm not a petrol head personally, but cars are important to include and come up a lot for business owners. You see, the tax on company cars has increased to the point where it’s not usually financially viable for the company or the user of the car. But all of this has changed with the electric car.

If your business buys the car, 100% corporation tax relief is available in the year of that purchase. There are also other side benefits like tax-free charging at the workplace, tax-free accessories and zero to pay in road taxes, and electric cars get taxed at 1% currently, rising to 2% soon. Not to mention the petrol shortages!

LIFE/CRITICAL ILLNESS/MEDICAL INSURANCE

At the moment, I hold medical and life insurance outside of the business. However, when I incorporate my accountancy partnership, I will bring these into the business. When you purchase policies like these through the business, they are much better in the way they payout.

TRIVIAL BENEFITS

Trivial benefits are an area I haven’t wanted to make use of until the business reaches a certain stage. These are a tax-efficient way for a director to take £50 of value from the business, to a maximum of £300 total in a year – through vouchers, not cash. It’s £300 of tax free-money a year which you can choose to spend however you like, like vouchers for treats. I’m thinking of using these on my trips in the motorhome.

It’s worth noting that with employees, there's no cap on it. When you want to say thank you to your team, or give a boost of motivation, a £50 voucher or gift up to that value can go a really long way.

SUBSISTENCE, TRAVEL & EXPENSES

Finally, it’s one every business owner will be aware of, but as a minimum, I ensure I am on top of claiming back all eligible costs, for business-related travel, or when staying away with work, or entertaining clients. The likelihood is there will be some costs you’re not claiming that you could be.

 

What can you do for your team?

There are also key areas where you and your team can benefit from being more tax-efficient. These include:

MOBILE PHONES

For example, one mobile phone can be given to every employee in the business - including yourself and family members that are employed. I put my mobile through the business and there is no tax or NIC regardless of whether the phone is used for personal calls, messaging, etc.

 

HOME WORKING EXPENSES

An area that has impacted everyone due to Covid is working from home. You can pay 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.

STAFF FUNCTIONS & LUNCHES

A couple of perks teams do enjoy are staff do’s and lunches. Provided the cost per attendee is less than £150 (per year), it’s not taxable for you or your employees to provide a staff event, and each employee can bring a plus one for that same tax benefit.

And with lunches, provided all staff are given the option, offering lunches to employees at the business premises is tax-free for the employees, and the business can claim corporation tax relief and recover VAT (where relevant) on the costs.

 

Reducing tax for the business

Then, there are a few things you can do to reduce tax for the business itself.

INVESTED IN BUSINESS

Personally, I have been investing in business systems. I have integrated practice online accounting, Times Up pricing software, QuickBooks cloud accounting and tax software, practice management software, AVN advisory tools and Diagnostax tax consultancy software. Setting solid foundations for the business and long term value, tax efficiently.

 

CAPITAL ALLOWANCES

Partnerships and capital allowances are another way you can reduce tax for your business. Suppose a business has previously bought an asset within a building. In that case, you may be able to make a claim for Capital Allowances Tax Relief for that asset and make a business corporation tax saving. Capital Allowances allows a business to offset the cost of the asset investment against taxable profits up to a maximum of £1m.

If you are in need of new equipment like this, now is the time to invest because of the Capital Allowances Super Deduction.  As with the Super Deduction, a limited company can claim 130% for that investment if it is a new purchase - and there is no cap on the investment that qualifies.

Do you know your real-life number?

If you want to understand the tax position of your business better, identify your life number down, and get a plan in place, I can help you get you there.

It can genuinely help you achieve the things you want in life.

Get ready to take control of your finances.