At Suttons, we understand that it is vitally important for our clients to have a good professional circle. If you are a business owner our team of advisers have come up with some questions you should ask your accountant to make sure you are getting the very best from the available rates and allowances.
1. How much should we be drawing as salary and dividends from the business?
We regularly notice that company Director’s salaries have remained unchanged. You should ask your accountant what the current personal allowance is and check if your salary is up to this figure?
2. How does cash in the company held in the business affect our eligibility for Entrepreneur’s Relief?
You may have heard the term Entrepreneur’s relief? ER is now known as Business Asset Disposal Relief, it means you will pay 10% tax on up to £1m on gains of qualifying assets, as opposed to normal capital gains rates (up to 20%).
You may not be aware that holding a significant amount of company cash or non-qualifying assets such as property investments can affect whether you are eligible to claim the relief. Careful planning is needed especially if you have plans to sell your business in the coming years.
3. What should we be doing with the retained profits?
Too much cash can be a bad thing. There will always be a need to keep adequate reserves for cash flow purposes but excessive cash sitting idle will lose value to inflation and can affect your eligibility for Entrepreneur’s Relief. Consider how you can make better use of this cash in terms of reinvesting in the business, a new business, property and how you can extract profits tax efficiently into your personal wealth.
4. Can I pay for personal insurances through the business?
If you are paying for your life insurance personally out of taxed income, you should be considering paying for it through your Limited Company using a Relevant Life policy. Relevant Life allows the business to pay the premiums which are an allowable expense and no personal tax liability.
5. Should we be making larger pension contributions?
The annual allowance for pensions is a valuable relief for you as a business owner; allowing you to extract profits with no tax and build up personal wealth outside the business so you aren’t wholly reliant on the sale of the business when you want to start working less. Pensions are great way to purchase a commercial property and sit outside of your Estate for Inheritance Tax purposes.
The annual allowance for pensions is £40,000 but you are able to carry forward unused allowance from the previous three years, allowing a £160,000 contribution per Director. Careful planning is required to ensure you do not exceed your allowances especially if you are a high earner.
If you were unaware of any of the above, then please speak to your adviser at Suttons who would be happy to assist you further.
Your Team at Suttons