Tax Planning for Business Owners: The Strategies Accountants May Not Tell You
For many business owners, tax planning often feels like a horrible task—a necessary evil you’d rather leave to your accountant. But here’s a little secret - the real magic lies in proactive, strategic tax planning. Yes, your accountant can save you money, but there are advanced strategies that go beyond the obvious deductions, and knowing these can give you an edge. Let’s dive into some lesser-known ways to lighten your tax load.
Optimise Your Salary and Dividends
As a business owner, you have more control over how you pay yourself than the average employee. Here’s how to use that to your advantage:
Split Your Income: Pay yourself a modest salary (to use your personal allowance which is currently £12,570) and top it up with dividends, which are taxed at a lower rate.
Share the Wealth: If your partner’s in a lower tax bracket, consider sharing dividends to maximise tax efficiency.
Plan Your Timing: Declare dividends in tax years when you’re under the higher tax threshold to minimise liabilities.
Pensions: A Tax-Efficient Retirement Strategy
Pensions aren’t just about saving for retirement; they’re a brilliant tool for reducing corporation tax.
Employer Contributions: Payments into your pension from your company are considered a business expense, reducing taxable profits.
Annual Allowance: You can contribute up to £60,000 per year (including carry-forward rules for unused allowances from the past three years) and claim tax relief. Given it’s an employer contribution, the contribution is not limited by your earnings meaning you can whack the full £60k in.
By boosting your pension, you’re saving for the future while cutting your tax bill today. Winner winner, chicken dinner.
Family Payroll Strategies
If family members genuinely help in your business, putting them on the payroll can be both tax-efficient and legitimate.
Pay Your Spouse: Ensure the salary is reasonable and justifiable for the work they do.
Utilise Tax Allowances: Each family member has a personal allowance; using theirs effectively reduces your taxable income.
Charitable Giving for Tax Relief
Donating to charity can reduce your tax bill while supporting good causes.
Gift Aid: Claim tax relief on charitable donations made personally.
Corporate Donations: Your company can deduct the full amount of donations as a business expense.
Conclusion
The strategies accountants won’t tell you about aren’t necessarily secrets, they’re simply areas that require proactive planning. By optimising your income and leveraging allowances, you can significantly reduce your tax burden. Remember, tax planning isn’t about evasion, it’s about using the rules to your advantage.
p.s. not advice obvs!