How can I make my life and business more tax-efficient?

Happy attractive entrepreneur man calculating costs, charges, mortgage, taxes or paying bills with d

Ask the expert at Smith & Pinching about how to make your business and personal life tax efficient - Credit: Getty Images/iStockphoto

I run a small business through a limited company. The business is quite profitable so I pay myself a decent salary, occasional dividends and have set up a pension scheme into which I put regular employer and employee contributions. I still end up paying both Corporation Tax for the business and higher rate Income Tax for myself. I’m looking at paying myself a higher salary and buying a better company car to reduce my Corporation Tax bill, but that means I will be paying more Income Tax. What should I do?

Matthew Beck Chartered Financial Planner with Smith & Pinching

Matthew Beck is a Chartered Financial Planner with Smith & Pinching - Credit: Smith & Pinching

Matthew Beck of Smith & Pinching responds:

Many successful business owners find themselves with this dilemma – whether to focus on a tax-efficient strategy for their business or for themselves. It’s certainly important to make sure that both sets of priorities are taken into account.

What I suggest is that you have a meeting with both your accountant and a financial planner to discuss tax planning for the business. A primary objective of that meeting would be to build an effective remuneration package for you that ensures you are taking advantage of the various tax allowances and reliefs available to you. It’s a question of getting the right balance between your level of income, pension contributions and dividends in a tax-efficient way, as well as considering other potential benefits such as private health insurance and your company car.

Reviewing your company’s planning would include looking at the business protection products that you have in place. This might involve, for example, a life insurance policy taken out on your life by the business, known as a relevant life policy, as well as key person protection and possibly shareholder protection, depending on the structure of your business.

It’s equally important that you have a personal financial plan that identifies your financial goals and plots a course to achieve them, using pensions, investments and protection policies. This personal plan needs to be aligned with your business planning, so your discussions with your professional advisers should ensure this is the case.

Another valuable area to discuss would be your exit and/or succession planning, even if this is likely to be some years away. It’s important to set these milestones early so that your planning takes account of what needs to happen at that point.

Professional, independent advice is the key to planning for you and your business to deliver both tax-efficiency and continued prosperity.

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Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

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