Chris Murray: Business Tax Planning Strategies

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rsz_chris_murrayWHERE the owners of a business are the shareholders there is considerable scope for deciding how profits should be taken out of a company.

Firstly, this involves deciding whether to take profit as a salary and/or a dividend.

There are sixteen factors one should consider when reviewing whether it is better to take a salary or a dividend:

1. Whether the taking of the dividend is a one-off event

2. Whether the taking of the dividend is part of a tax-planning scheme to substitute the bulk of salary and bonus as income

3. Whether a substantial reduction in salary will result and for how long

4. The profitability of the company now and in the future (ability to pay dividends)

5. Whether the taking of the dividend substitutes for a bonus payment to be more tax efficient

6. The corporation tax rates of the company and the tax payable before the dividends are paid – to determine the actual tax efficiency of the payment

7. Possible impact on share valuations if dividends are paid regularly

8. Impact on pension contributions

9. Impact on pension benefits and tax free lump sums

10. Impact on group life/death in services benefits, group critical illness cover, PHI for income replacement and other benefits calculated by reference to salary

11. Individual tax rates of the shareholders

12. Number of shareholders and whether they all qualify

13. Corporate financial planning implications of suggested strategy

14. Aligning corporate financial planning with individual personal financial planning needs and requirements

15. Risk assessment, compliance and safety aspects

16. Balance in remuneration planning is required throughout.

Other strategies may involve getting the timing right of certain payments and receipts.

A few do’s and don’ts:


1. Ensure that any provisions made are against specific costs, not a general estimate.

2. Ensure that any pension contributions are paid before the year end.

3. Consider whether any additional remuneration/bonuses should be voted to directors in respect of the current accounting period (these can be paid up to nine months after the year end).

4. Ensure that you value stock and work in progress taking into account any reduction arising as a result of obsolescence.

5. Plan to bring forward any capital expenditure into the current accounting period.


1. Sell assets, such as property or shares that will give rise to a large chargeable gain until after the company’s year end.

2. Forget the effect this will have on your accounts as if you reduce your profits, the bank manager may wonder if that lending was such a good idea after all!

3. Sell assets on which capital allowances have been claimed until after the year end. In summary, here are just a few of the strategies one can adopt:

 Year end tax planning for sole traders and partnership

 Defer income/advance expenditure;

 Companies may defer sales of chargeable assets until after the year end, thereby deferring capital gains;

 You may consider advancing the sale of chargeable assets if current year capital gains annual exemptions have not been used;

 If the business is seasonal, we could consider changing your accounting date. The tax rules associated with such a change are complex and great care on the selection of an alternative accounting date is required;

 You might accelerate bonuses to staff and directors;  Make extra contributions to pension schemes;

 First year allowances are claimable on some plant and machinery.  For a small company it is normally more economical to pay a dividend than a bonus;

 Consider the timing of dividends and bonuses with regard to the personal tax position of company shareholders;

• Chris Murray is Practice Manager at Casey & Co Accountants & Auditors. Casey & Co. strive to add real value to your business by providing specialist services in the areas of business start up, restructuring, bank negotiations and succession planning.

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