One of the great irony’s of running your own business is that when you congratulate yourself on a good trading year the realisation can dawn that it is the taxman who ends up the main beneficiary.
Business owners are so busy with the day job that they overlook necessary financial planning. From our experience as advisers three commonly missed opportunities are:
Buy premises rather than rent
Take a leaf out of the book of the much criticised private equity companies and borrow against the purchase of business assets. Writing off the interest payments on a commercial mortgage against your companies trading profits is a massively efficient way of reducing tax whilst building value in your business.
But it is often difficult to appreciate that the very same tax breaks that help to fund multi-billion pound takeovers can also be applied on a much smaller basis.
Hold cash efficiently
If nothing else, ensure that you are benefiting from the best possible interest rate on the company’s cash at bank. Inertia will often mean that business owners keep cash deposits with the same institution that provides the company’s current account but the High Street banks will almost always pay less than the new, often internet-based, entrants to the savings markets.
Longer term cash reserves can be held tax efficiently within an offshore insurance bond. Any money held in the bond will benefit from what is known as ‘gross roll up’ and no tax will be payable on the interest until the funds are repatriated.
With careful planning the eventual repatriation of the monies can be made at a time when the company is making little or no profit and, effectively, interest will have been earned tax free.
Pension rather than salary or dividends.
Business owners can save personal and company tax by using a pension and should encourage employees to take benefits this way too to help reduce employers National Insurance.
It is vitally important that you use the weapons in the tax planning armoury to best effect to avoid the Chancellor enjoying the benefits of the hard graft of you and your employees. Time taken out of your busy day to day responsibilities to help plan a tax efficient business strategy is never wasted.