There are roughly 5 levels of tax review a business might need, dependent upon where the business is up to in its business lifecycle. This is an example of my own level 2 tax review.
The Tax Diagnostic Review is an enhanced level of tax consultancy service, which we currently offer as a bolt-on service for clients who are looking to carefully manage their business and personal tax position.
I wanted to share with you my experience completing the Maximising Value Tax Diagnostic, as for me, money management is not about the money you earn – that’s just cashflow – it’s about the money you keep, read on to see why…
Household Income
It’s important to me that we maximise our household income in a tax-efficient manner. Currently, Mr A (who is also a Chartered Accountant) doesn’t work in the business, but that may happen at some point in the future – (there’s got to be a benefit of having 2 accountants in the home!) For now though, Mr A is a shareholder, which suits our household income because our dividends are taxed across the two of us, not just me. This means we benefit from maximised 0% dividend allowance.
I needed a little extra
Not what I would normally do, but the endless number of potholes and road humps on the school run eventually took their toll on the family car. I like to look after my cars and tend to keep hold of them for a good while, so it is not often I need a bit extra to cover the cost of new motor. That, plus we decided to invest in a staycation property this year too, which means we can get the teenagers off their phones and on to their paddleboards instead – and have the option of earning furnished holiday let income, so all in all it has been an expensive year! To do this, I took out a dividend, the £2K tax-free amount, plus a bit which meant the kids are happy to be seen in at school in mums new car, and we get to have happy times at the beach.
More on cars…
After my switch up, my husband got very excited about the idea of electric vehicles…when the time comes it’ll be a no-brainer to go for an electric car next as (apart from the obvious green aspect) and if he is working in the business by then, significant corporation tax relief against profits will be available, with a minimal benefit in kind charge. Not forgetting all the extra running costs he may be able to put through the business and take advantage of, such as installing a charging point at home, car insurance, and servicing which all normally add up to a pretty penny.
Investing in my retirement
I just can’t see myself retiring…but that doesn’t mean I shouldn’t be ready for it.
What I do know is that when I get there, I want to be fit, healthy and enjoy a comfortable pension. I’ll be honest and admit it took a while for me to get organised, get a pension and start making the contributions. In a previous life I’d worked with 2 blue chip companies, both of which had made significant pension contributions for me already… so I thought I had time to get sorted. But, the feeling you get when you are paying your corporation tax bill (you also get a corporation tax deduction on the money paid in), knowing its lower due to the company making a significant contribution (subject to income levels and allowances) and that money actually went into your pension pot, is very satisfying.
I also know, (I am a control freak about some things) that watching that pot build will provide me with lots of options as to when (if I ever) want to retire. Right now, I imagine I’ll take 25% tax-free (perhaps to help the children move on the property ladder) with the remainder being subject to tax but it will be spread across multiple tax years, therefore making the most of the annual personal allowances and tax rates.
Company Loans
When I set up the business, I lent money to the company to cover the initial expenses and get it off the ground. Doing so meant the company paid me a commercial rate of interest back on that money which allowed me to take out £500 from the business tax-free (it can be up to £1,000 p.a.). Nowadays, the roles have reversed, and the company has since repaid the loan, so now I get to take out a loan of up to £10K tax-free from the business. This was a chunk of the deposit required to buy our holiday house this year. I could have funded it personally, but the company had spare cash flow and as I didn’t have an overdrawn director’s loan account, I could take this loan tax-free.
Maximising business expenses paid for personally
As a business owner you carry a lot of responsibility on your shoulders. You’re not only responsible for the business, but all the stakeholders: directors, staff, clients, everyone – and I take this really seriously. That’s why for me, it’s vital to maximise business expenses wherever possible. By ensuring claiming travel expenses on trains/flights, mileage allowances when travelling for business. Also, subsistence expenses when eating & drinking when traveling on business as well (using our Receipt Bank app makes it easy for us to do that).
Top Tip! In order to super charge the reward when reclaiming expenses, I use a points reward card. The cards I use is M&S (others are available 😊) By doing this, in the last year, I had built up enough points to cover the lion’s share of the Christmas presents, food and drink. All because of the points I built up on my M&S card!
So there you have it, my Extracting Value Diagnostic Review
Like I mentioned earlier, there are roughly 5 levels of tax reviews a business might need, dependent upon where they are in their business lifecycle. This is an example of my own level 2 tax review. Look out for my own personal experience of the other levels which I’ll be sharing over the coming weeks.
If you’d like to have a chat with us about our tax services and find more about what you could be doing, book a call to get started.