We are often asked, how can we extract more of the profits locked within the company without incurring a hefty tax bill?
If you trade from a company you will be familiar with the concept of your director’s loan account, and you will probably also understand the frustration of either constantly going overdrawn on your loan account or having funds in the company that you can’t access without triggering a significant tax bill.
And if this isn’t a problem for you now, based on the law of averages it probably will be soon!
We have a few creative solutions up our sleeves, but it’s always a good idea to start with a few of the basic things you could and should be doing to relieve pressure on those all-important loan accounts.
Reclaim business milesAny business miles travelled other than in a company vehicle with fuel provided (excluding home to work) should be recorded and charged back to the company at the appropriate mileage rate. If you don’t do this, you are eroding your loan account at quite a rate unnecessarily.
Utilise the children’s tax free allowancesSchool fees and children’s savings should not come out of your loan account. We have a tailor-made solution for this called the Family Wellbeing/Welfare Trust which enables these payments to come out of the company but completely by-pass your loan account.
Staff giftsThese should go through the company as a tax deductible expense (and if appropriate taxed through the payroll on the staff members concerned). Remember that outright non-cash gifts with a value of less than £50 are usually tax free for the staff member under the ‘trivial benefits’ rules.
Gifts to yourself
Don’t forget you can take advantage of the ‘trivial benefits’ rules as well! This is capped however at a total of £300 per tax year for each director.
So there you have it – 4 ways to reduce the impact on your loan account. These are just 4 suggestions – there are more options available, if you are still needing more? Get in touch to discuss additional creative solutions for extracting chunks of value at a very low tax cost.