🟣🟢 How to wipe out your tax bill...

Happy weekend…👋

Cold, frosty, sunny mornings - who doesn’t love them at this time of the year?

Earlier this week, I had an interesting conversation with a business owner that really stuck with me.

He was frustrated, actually, cross with himself because he’d realised he had been missing a trick for years when it came to tax efficiency.

Every year, he had been paying Corporation Tax on his business profits, while only making small contributions to his workplace pension scheme.

It had never really crossed his mind that he could have been using company pension contributions as a way to reduce his tax bill significantly.

His company’s year-end is 31 May, and once again, he’s looking at a large tax bill. He also has a lot of cash sitting in his business account, earning next to nothing.

Then he asked me: "I don’t suppose there’s a way I could not only wipe out my Corporation Tax bill this year but even get some of last year’s tax back?"

This was a lightbulb moment for him.

We discussed the possibility of making a large company pension contribution - one big enough that it could create a loss for the business, potentially offsetting previous tax liabilities.

As I suggested, he checked with his accountant, who confirmed that this was possible in his case.

Suddenly, he saw a way to transform tax payments into long-term wealth instead of just handing money over to HMRC.

This got me thinking: How many business owners are unknowingly overpaying tax because they haven’t fully explored their options?

5 Ideas to Make Sure You’re Not Overpaying Tax

1️⃣ Don’t Take More Than You Need – Get the Right Mix of Salary & Dividends

Taking money out of your business efficiently is the key to minimising tax:

• Salary & Dividends – A combination of a small salary (to qualify for state pension benefits) and dividends (which are taxed at lower rates than salary) usually works best. But make sure you’ve got the right balance because some people get it wrong.

• Timing Dividends – If your profits were unusually high this year, consider spreading dividend payments across multiple tax years to avoid tipping into a higher tax bracket.

2️⃣ Supercharge Your Pension (And Slash Your Tax Bill) 

Many business owners underuse their pension allowance, missing out on significant tax savings:

Company Pension Contributions – Employer pension contributions reduce your company’s taxable profit, meaning you save Corporation Tax at 19% or 25% (depending on your profit level).

Carry Forward Unused Allowances – You can contribute up to £60,000 per year into a pension and carry forward unused allowances from the past three tax years - a great opportunity if you have excess cash.

Creating a Tax-Efficient Loss – If your business has had a profitable year, a large pension contribution could even create a tax loss, potentially allowing you to reclaim tax from the previous year.

For the business owner I spoke to, this one change could save him thousands - not just this year, but every year moving forward.

3️⃣ Use All Your Tax-Free Allowances

It’s surprising how many allowances go unused:

• ISA Contributions – While ISAs aren’t directly funded by your business, using your £20,000 ISA allowance can shelter your investments from future tax.

• Dividend Allowance – The tax-free dividend allowance is now just £500, but it’s still worth making use of.

• Spouse & Family Planning – If your spouse isn’t using their full tax-free allowances, could they be brought into the business as a shareholder to spread dividends more tax-efficiently?

4️⃣ Don’t Let Business Cash Sit Idle

If your company has significant cash reserves, doing nothing is actually a risk.

Inflation eats away at its value, and the interest rates offered on business accounts are usually low. If your business has built up cash reserves, doing nothing with it can be a missed opportunity. Here’s what you might consider:

• Company Pension Contributions – One of the most tax-efficient ways to extract profits while reducing Corporation Tax.

• Corporate Investment Accounts – If you don’t need the cash immediately, your business can invest in a diversified growth portfolio, though profits will be subject to Corporation Tax.

• Holding Company Structure – Some business owners set up a separate investment company to invest excess cash in property, private businesses, or a portfolio, keeping funds within a corporate structure while deferring personal tax liabilities.

• Strategic Reinvestment – Instead of letting cash sit idle, reinvesting in growth, whether hiring, equipment, or acquisitions, can generate better returns.

5️⃣ Plan Ahead – Don’t Leave It Too Late

Too many business owners only think about tax when they’re handing over the money to HMRC.

By planning earlier in the year, you can make smarter decisions that could save you thousands. Ask yourself:

• Am I making the most of tax-efficient withdrawals?

• Am I using pensions and allowances to their full potential?

• Is my business cash working for me, or is it just sitting there?

If you’re in a position like the business owner I spoke to, realising you’ve been missing an opportunity for years, now’s the time to act.

Don’t Let Another Year Go to Waste – Take Action Now

If you’re sitting on a big tax bill, excess business cash, or just wondering if you’re missing out on smarter financial strategies, now is the time to fix it.

Let’s have a quick, no-pressure chat. In 20 minutes, we can review your situation, spot any missed opportunities, and make sure your hard-earned profits are working for you - not just for HMRC.

Book a Discovery call and find out if we can help you

Or simply reply to this email with "Let's talk", and we’ll be in touch.

Who doesn’t love a Deadline...

But DON’T let the end of the tax year catch you by surprise.

This is your reminder! There is only a month left until 5th April 2025.

This is the best time of year to be not just thinking but DOING!

😎 THAT’S IT FOR THIS WEEK!

If you need any help with your financial stuff, would like to know more about our services, or have any questions at all, do ping me a reply.

Hilary 😎

P.S Whenever you’re ready maybe I can help: Book a Discovery call and find out if we can help you

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