EXTRACTING  YOUR MONEY FROM YOUR BUSINESS

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As a business owner, it’s crucial to stay updated on the best ways to extract value from your business while maximising tax efficiency. Here are some important areas to watch out for in the 2024/25 tax year:

Salary & Dividends

Salary: It’s generally recommended to take a minimal salary to retain access to state benefits such as the State Pension. For the 2024/25 tax year, a salary above £533 per month (£6,396 per year) ensures eligibility. If the employment allowance is available, a higher salary can be taken without incurring national insurance contributions. The standard minimal salary levels are:

  • £9,568 per year (£797 per month) if the employment allowance is available
  • £9,100 per year (£758 per month) if the employment allowance is not available​
  • £12,570 per year (dependent upon other income)​.

Dividends: The first £500 of dividends are tax-free annually for the 2024/25 tax year, down from £1,000 in the previous year. Beyond this, the tax rates are 8.75% up to £50,270 of total income and 33.75% for higher income levels. For income exceeding £150,000, the rate is 39.35%. Careful planning is essential, especially if considering large dividend payments​. There is a horrible rate that you end up paying 60% – read our blog Earnings over £100k – Vibrant Accountancy

Employing Family Members: Employing a spouse, civil partner, or family member can be tax-efficient if their pay is justifiable based on their actual work. This can help utilize their personal allowances and lower tax bands​​. Navigating the Complexities of Employing Family Members: Balancing Work, Compensation, and Legal Compliance – Vibrant Accountancy

Pensions

Registered Pension Schemes: Contributions to pensions are highly tax-efficient, with the annual allowance increased to £60,000 for the 2024/25 tax year. Contributions above this limit may trigger tax charges. For high earners, the allowance tapers down by £1 for every £2 of income above £260,000, with a minimum reduced allowance of £10,000. Unused allowances can be carried forward for three years​ (GOV.UK)​​ (House of Commons Library)​.

Loans

Loaning Money to the Business: If you’ve previously lent money to your business, consider reclaiming it tax-free when the business has sufficient funds. Charging interest on loans to your business can also be tax-efficient. Also consider whether you should be making separate legal agreements for this money you are lending to the business.
Note: Where interest is paid to an individual a CT61 should be completed and basic rate tax deducted and sent to HMRC.

Employee Loans: Offering interest-free loans up to £10,000 to employees (including yourself) can be a great retention tool and tax-efficient​​.

Loaning Money to you: If the business has sufficient money, yes you may have additional taxes to pay in the short term (s.455) but with the HMRC official rate of interest set at 2.25% for the 2024/25 tax year​ (GOV.UK)​ it does make it relatively cheap lending, if cash is on the businesses side.

Business Assets

Renting Personal Assets to the Business: Charging rent for the use of personal assets by the business can be an efficient way to extract value. However, it’s important to consider the impact on reliefs like Business Asset Disposal Relief​​.

Personal Use of Company Assets: Ensure that the personal use of company assets is minimal or incidental to avoid tax implications​​.

Employee Benefits

Mobile Phones: Providing one mobile phone per employee, including family members employed by the business, is tax-free regardless of personal use​​.

Trivial Benefits: Items costing less than £50 each can be given as tax-free benefits, up to £300 annually for directors and uncapped for other employees​​.

Staff Functions: Events costing less than £150 per attendee are tax-free, making them a great way to reward employees​​.

Training and Development: Paying for work-related training is tax-free for employees and deductible for the business​​.

Other Tax-Efficient Benefits

Lunches and Snacks: Providing reasonable meals at the business premises is tax-free and deductible​​.

Childcare Support: Utilizing schemes like tax-free childcare or salary sacrifice for childcare vouchers can result in significant tax savings​​.

Cycle to Work Scheme: Employees can purchase bicycles and equipment through salary sacrifice, resulting in tax and national insurance savings​​.

Onsite Gyms and Sporting Facilities: Providing access to these facilities can be tax-free if available to all employees and not open to the public​​.

Company Cars and Electric Vehicles

Electric Cars: Pure-electric and hybrid cars can offer significant tax advantages, including low benefit-in-kind (BIK) rates and 100% corporation tax relief on purchase.

Charging Electric Vehicles: The cost of charging electric vehicles at the workplace is tax-free, and home charging points for company cars can also be provided tax-free​​.

Business Expenses Paid Personally

Home Working Expenses: Reimbursing employees £6 per week (£26 per month) for home working costs is tax-free. Higher amounts require evidence of actual costs​​. Although watch out here now, as this can only be claimed where you have no option other than to work from home, or it is forced in your contract.

Mileage Claims: Claims of 45p per mile for business travel up to 10,000 miles and 25p per mile thereafter are tax-free​​.

Subsistence and Entertaining: Business travel-related meals and incidental expenses can be claimed tax-free. Client entertaining, however, is not deductible for corporation tax purposes​​.

Music, Audio Books, and Amazon Prime Subscriptions: These can be claimed as business expenses if used exclusively for business purposes​​.

School and University Fees Planning: Utilizing trusts or gifting assets to fund education for family members can result in substantial tax savings, provided the parental settlement rules are adhered to​​.

By keeping these considerations in mind, you can optimize the value extracted from your business while ensuring compliance with current tax regulations. For personalised advice contact us and we’ll get a tailored plan in place for you and your business.

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