Smart tax planning can mean your company ends up paying les tax than you would otherwise. Nobody wants to pay more tax than absolutely necessary – so what are some of the opportunities you can take advantage of to reduce your corporate tax bill?
Paying less tax requires effective tax planning
Make sure your company is making full use of current tax allowances and tax breaks. Many company directors do not take full advantage of tax breaks.
1.Tax relief on relevant life insurance premiums
How does a relevant life insurance plan work? Quite simply, it’s the same as a regular life insurance policy but it is taken out by a company and the premiums are paid for by the company. The policy provides protection for an individual for a specific period of time, for example, until statutory retirement age or for the duration of the director’s time with the company.
The major difference between this type of policy and a regular personal life insurance policy is the treatment of the premiums and also the need for a trust to distribute the proceeds of any payout made by the policy in the event of death. Effectively, it is a death-in-service benefit.
Where do the savings come from? Firstly, because the cost of the policy is normally treated as a trading expense, this means the entire cost of the premiums is tax deductible. In addition, if the business pays the premiums – they are not dealt with as P11D benefits and so do not adversely affect the level of personal income tax of the person insured. Another benefit of this type of plan for company directors is that if the policy payout on death is through a relevant life trust, the sum of money received by the family will not be subject to inheritance tax. It’s best to seek advice from UK brokers for relevant life insurance in order to set up a policy in the most tax efficient manner.
2. Pensions and professional insurance
These are both expenses which can be funded by the company, rather than an individual, and will in effect increase trading costs and reduce corporation tax liability. This is more beneficial than the individual funding the premiums for the same level of benefits.
3. Annual investment allowance
Make full use of the Annual Investment Allowance provided by HMRC. You can currently write off up to £500,000 annually with regard to business-related equipment including commercial vehicles and office equipment. For example, your company profits are £1,000,000 and you invest £300,000 in business-related equipment, plant or machinery; your corporation tax bill base will be £700,000 rather than the full £1,000,000. This results in a tax bill of only £140,000 instead of £200,000, a substantial saving.
The more complex the structure of your business the more opportunities exist for effective tax planning. And the larger the numbers involved the greater the need for tax mitigation strategies to be fully developed and utilized.