How to reduce your Corporation Tax liability without impacting liquidity
One of the biggest problems many of our clients ask us to help them resolve is the burden of success….
All successful business owners know that the price of making too much profit is an eye-watering Corporation Tax bill. How to reduce your Corporation Tax liability without impacting liquidity or other impact, seems almost impossible.
|X||Investment of hard-earned profits comes at the cost of increased tax penalties|
|X||Investing profits directly into company growth leaves you with reduced cashflow|
|X||Contributions to traditional pension plans leave you with no control over how they are invested|
|X||Investment or contributions mean money is tied up, leaving you stuck when it comes to cash flow|
|X||You cannot just sit on the company the profit without incurring tax penalty|
|X||Should the worst happen, your family will be liable for a huge inheritance tax liability|
It is possible to reduce Corporation Tax AND retain liquidity
It is a tax upon your hard work and success and can feel like an unmanageable dilemma!
You pay your tax once; paying it twice is a double blow.
We all know the secret to reducing the Corporation Tax bill:
… make less profit or rid of it from the trading company account – but that is easier said than done without incurring tax penalties and reducing that essential cash flow.
Some options to reduce the year-end balance sheet which you may have considered include:
- Making additional pension contributions
- Investing profits back into the company
- Claiming business expenses
- Taking advantage of R&D tax relief
- Capital allowance on property
- Releasing shares to employees
- Charitable donations
- Claiming business property relief (BPR)
- Claiming certain available industry reliefs
- Spending profits on staff events and rewards
- Spending profits on training
- Subscribing to training packages
The list goes on, but they all come at a price to you and your company in the form of reduced company cashflow.
To continue the successful financial management of the company and to be prepared for unforeseen expenses, liquidity MUST be maintained.
The answer therefore lies in a solution that legally removes excess profit from the trading company and places it somewhere that:
- facilitates growth
- protects it from your estate
- leaves you in full control
- offers the accessibility and fluidity to support the cashflow that is essential to your business
So, what if we told you that there was a way to achieve this holy grail that all business owners dream of?
|Control over your pension funds before age 55|
|An additional source of business funding|
|An ongoign source of cashflow|
|Up to 0% in Inheritance Tax|
|The ability to combine and pool pension funds|
|Increased gains potential on investments|
|Greater investment choice|
|Protection against loss of Business Property Relief (BPR)|
|Security of wealth and family legacy|
TLPI can work with you to understand your exact situation, address pain points and resolve goals. Our consultants are experienced in strategic tax planning for enhanced cashflow and reduced Corporation Tax. The process is straightforward as TLPI does the heavy lifting to ensure the plan is HMRC compliant, robust, and easy to manage for your ongoing success.
The plan can consist of one, or both, of the following products:
The Small Self-Administered Scheme (SSAS)
the Family Investment Company (FIC)
1 – The essential product required for bringing down the balance sheet is the SSAS.
A SSAS is a business pension scheme, exclusively available to company directors. It allows business owners like you to take control of your own pension funds, all within the rules of HMRC and The Pensions Regulator (TPR), and invest them at your own discretion. You can read more about the SSAS by clicking here
So how does the SSAS help maintain company cash flow?
The key element here is the SSAS Loanback. This is a facility unique to this sophisticated pension type which allows you to loan up to 50% of your pension to your trading company, for any business purpose. Immediately, the cash flow issue is solved! Cash, assets, and pension contributions can be paid into the SSAS, reducing the balance sheet, providing investment funds and securing assets, BUT funds still remain available to the company via the unique SSAS pension loanback facility,
Loans from your pension to your company must be paid back within five years. You can set your own interest rate on the loan, as long as it is at least 1% above the high-street base rate. The trick here is to set a higher interest rate, meaning that your payments from the business are increased, further reducing the company balance sheet, whilst increasing your pension pot at the same time. In addition, this is the repayment of a business loan and is thus classed as a business expense!
Using a SSAS, clever solutions can be created to increase growth both in the business and the pension fund. In turn, this unlocks a myriad of investment opportunities that would have otherwise been closed to you.
Another great benefit of a SSAS pension is that, unlike other pension schemes, it is allowed to invest in property, all within HMRC rules. There are so many options and strategies open to you via the SSAS.
Example 1: your SSAS could purchase your business premises! Why?
The company then pays rent to your SSAS –
- An allowed business expense
- Reduced year-end balance sheet
- Rental income received by the SSAS is NOT LIABLE for income tax
- Capital gains on the value of the premises, if sold, are not liable for Capital Gains Tax
- The property is ring-fenced in the SSAS, outside of your estate, for Inheritance Tax purposes
- The pension pot grows, giving you an even bigger pot for retirement, further investment or loanback to the business
- You become your own landlord
- Admin and legal fees are reduced
- Premises are safe within the ring-fenced wrapper of the SSAS, keeping them safe from IHT.
You can read more about SSAS investments and the extensive benefits it offers by clicking here.
“A company director who has not investigated the SSAS as a powerful business tool is wasting a fantastic opportunity for growth and further business success”
Whilst the SSAS is an amazing asset for any business owner on its own, there is further opportunity to save tax and protect wealth by also implementing and integrating a second product, the Family Investment Company.
2 – A Family Investment Company is a tax efficient product which allows you to:
- remove risk of losing Business Property relief if you retain or invest excess profit
- invest surplus company cash without subjecting your trading company to tax penalty
- reduce the Inheritance Tax liability your family would face should the worst happen
- create an investment property portfolio to grow the pot
- Improve cash-flow across your business
Example 2: You wish to build Buy-to-Let property portfolio, using surplus company cash:
Retained profit from the company is transferred into the Family Investment Company and used to purchase a number of buy-to-let properties
- the trading company avoids a 40% tax penalty, for being deemed an investment company by HMRC
- the buy-to-let property is ring-fenced inside the FIC, and outside of the estate so safe from creditors
- Assets of the FIC are protected from a 40% Inheritance Tax bill, should the worst happen to you
- nominated beneficiaries are part of the Family Investment Company
- passing on the the portfolio when you die, is already structured
- you maintain full control of both the trading and the Family Investment Company
- dividends can be taken, and loans made to and from the FIC
- funds can be moved freely between companies and, should you have one, your SSAS pension
- rental income from your buy-to-let portfolio sits within the Family Investment Company
By coupling the Family Investment Company with the Small Self-Administered Scheme, you are creating a financial triangle that gives you extreme flexibility over your total financial situation. By elevating your tax plan in this way, funds can be moved between the company, the FIC, and the SSAS, providing the greatest tax savings and the most profitable investments.
The FIC may take advantage of various tax reliefs, allowances, and benefits available to companies generally. The FIC and the trading company could be eligible for capital allowances, for example on investments in machinery, research, and development (R&D), or other business reliefs. Tax planning implements the understanding of these and utilises them via the FIC, within HMRC rules, to reduce its taxable profits and, in turn, corporation tax liability.
You can read more about the Family Investment Company by clicking here.
Start using your company profits to their full potential without impacting that essential liquidity.
Your initial conversation with one of our experienced consultants is free and without obligation, to answer any questions you may have an ascertain if and how a bespoke tax plan can work for you, your business and your family.
Use the button below to book a time that is convenient to you, for us to illustrate the benefits of tax planning and the many innovative strategies that are available to you today!