Meet Phil, a business owner who's received a tax diagnostic review. A service that's available to you. Find out some of the tax-efficient things he's doing to achieve his real-life number and take more value out of the business for himself and his family now and over the next 5-10 years.
For a number of years now, I’ve been operating across a range of businesses. Therefore when I look at the 32 ways, I’m looking at it in that context.
For me, money management is not about the money you earn but the money you keep. That’s why I love tax consultancy so much. It focuses on this mantra.
Household Income
It’s important to me that we maximise our household income in a tax-efficient manner. The way we do that seems to have changed so much over the years as we’ve gone from carefree pre-kids to responsible parents (ish) post-kids! Currently, this involves my Mrs being employed by the business, she’s an financial chartered accountant, so we might as well use her! This suits the business as we have an important function covered. It suits my wife, who wound down slightly from her career after we had kids. It also suits our household income because we are taxed across the two of us, not just me. This means we benefit from maximised personal allowances and lower-level tax bands, and the company can make a national insurance savings.
I needed a dividend for extra expenditure
Not the norm for me, but the current year was a bit of a spending year – ouch! Thankfully, they only seem to happen once every ten years as I’m such a tight arse! But this year we had some extensive work done on our home…which seemed to go on forever! Plus, we had a few lovely holidays like me, and the Mrs had been married for ten years. We took the family to Disneyland Florida over Xmas and New Year, which is something I’d always wanted to do. I and the Mrs went to Paris on our own, which we’d not done since before Oscar was born…now 8 long years ago! To do this, I took out a dividend, the £2K tax-free amount, plus a little more to keep the clan in a happy home and enjoying our ten years of married celebrations!
Building retirement investments
My years of frugality in extracting money from the company paid dividends a few years back when I set up an SSAS, which bought the office premises. The nice little arrangement which ensures the guaranteed rent is paid back into my pension tax free! Purchase of commercial property No 1 has wetted my appetite for more, so I’ll always invest as much as I’m able into this arrangement with a view to eventually planning the next investment. I’m a bit of a nerd so these kind of things excite me! I think it’s because I feel in control with it…firstly it’s a very tax efficient way to put money aside as you pay no income tax or national insurance when the money is paid in (subject to the limits). You also get a corporation tax deduction on the money paid in. Plus I get to dream…plan a future commercial property empire…long way off but hey, dream big! When I retire, which is probably never as I’ll get bored…so when I reach retirement age…I’ll take 25% tax free with the remainder being taxed but spread across multiple tax years, making the most of the personal allowances and tax rates. I want to live a highly active but extremely comfortable work / life retirement…I just can’t see myself retiring…but let’s see!
I’m not that into Cars, but…
I’m not massively into cars. I’ll be honest enough to say, I want something that looks decent, but not too flashy. One of the businesses had done really well so it was a bit of a no brainer to go for an electric vehicle when the time came around last year. Reason being we got 100% corporation tax relief against profits in that year, plus there is no BIK on me. It’s all the extra running cost aspects I was able to put through the business and take advantage of as well like installing a charging point at home, charging tax free at the office, car insurance and servicing which all normally add up to a pretty penny. I did have my eye on also putting a personalised number plate (GWIL-I-AM TAX) through the business (which is allowable) but Mrs D said she would divorce me! Quite right as well!
Company Loans
Way back when I lent money into the companies to get some started and the company paid me a commercial rate of interest back on that money which allowed me to take out £1K from the business tax free. However, the circumstances have changed, that money has now all been repaid to me and a few years back I instead took out a £10K tax free loan from the business. I didn’t need it, I just took it because the company had spare cashflow and you can take the loan of £10K tax free. My thinking here was to simply invest this and make more back, it’s a strategy that’s worked and I’ve made a fair amount on investing that £10K well.
Maximising business expenses paid for personally
Running a business takes grit, it’s hard to switch off and you are always working because it’s your passion. That’s why for me, it’s vital to maximise business expenses wherever possible. That means ensuring claiming travel expenses on trains/flights, mileage allowances when travelling for business. Also, subsistence expenses when eating & drinking when on travelling on business as well.
I also ensure I double-bubble the benefits by spending on a points reward card. My favoured card is Amex as they have a points rewards system connected to Airmiles. In the last year doing this I’ve built up enough points to travel to Paris 1st Class for £2. Then to Florida family of 4, 2 free tickets and upgraded to 1st class there and back. All because of the points I built which enabled me to do this!
Employee Benefits
The tight arse in me ensures I maximise the hell out these with all the following being put through the busines at every opportunity:
Life Insurance, it’s personally really important to me that my family is secure if anything were to happen to me.
My annual pension advice tends to be mostly covered by the £500 allowance
Mobiles – four in total for me and the Mrs – personal and business
Trivial benefits – albeit in £50 amounts the £300 from me and £300 amount for my wife ensures all Christmas and Birthday presents are covered in our household
£150 per head slap up dinner for the Xmas Do where we also have a good dance
Parking costs when visiting the office
New bicycle & weight loss.
It’s something that I’ve been aware of for a while, but never got round to doing. I used ‘Salary Sacrifice – Cycle to Work Scheme’ to purchase an expensive road bike, pre-tax, and in instalments. This reduced my tax liability on income & NI, plus it gets me a dream bike, without a surprise mammoth expense. Most importantly, it’s gets me exercising. Sexy bike. Sexy body. Tax is sexy!
Future intention
I would like at the right point to start exploring a family investment company.
For me this is about retention of earnings for me, my family and the business.
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