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Simply put this means structuring your business so that you minimise your personal tax bill and the company tax bill. The result is you pay the least tax possible within the confines of the law, and that you avoid missing out on any incentives and elections which could save you money.

It is perfectly legal and desirable to structure your business to minimise the overall tax burden for the company and its beneficial owners (in the case of a limited company, that is its shareholders).

Let’s take a look at how tax planning can help you in a practical sense:

Prepare for retirement

Depending on your priorities you may consider having your company contribute to a pension fund on your behalf. This is highly tax efficient but might not be suitable for everyone. Those with young families and mortgages need to extract funds now, not in 10 or 20 years’ time.

Limited company or Sole trader?

The limited company can shield the owner managed business’ profits from the higher rate tax of income tax which at the highest level is 45%! Compare this to the rate of Corporation Tax which is relatively low at 19%.

Salary or Dividends?

Salary is fully tax deductible in calculating trading profits. Dividends are not. However, factor in the costs of National Insurance payable on salary, by employees at 12% and by employers at 13.8%, and the decision is not as straightforward.

Company car or personal car?

The truth is “it depends”. Depending on which car you are planning to use and how much your other income is. Brand new, electric only cars are extremely tax efficient but can be expensive to buy. Employees using their own car can claim the statutory mileage rate, but this is restricted to business trips only, and is worth 45p per mile.

Buying property

Should the owner managed business buy the property it trades from? This seems like a great idea, because rent is usually one of the largest single overheads a business has. However, the business structure should protect its most valuable assets. No one wants to liquidate their company but it happens regularly. With careful planning, we can help you protect your assets.

Incentivise employees

Growing businesses need good people. In order to attract and retain staff you might consider giving employees shares in the company. There are tax advantaged schemes available to award shares, which benefits the business by rewarding loyalty, and employees by minimising their tax bill.

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