Do you pay yourself from a limited company? Two tips to save you money and pay less tax.
Whether you’re a business owner, or a contractor, we have identified two main areas which can help anyone who pays themselves from a limited company.
Amazingly, from our experience, many accountants are not introducing these ideas to their clients, so speak to Carlile Alexander Private Wealth about how we can help.
1. Making Pension Contributions From Your Company
Did you know? Pension contributions made from your company are normally a deductible business expense so reduce the amount of corporation tax your company pays.
Unlike salary, companies don’t pay 13.8% National Insurance on pension contributions, and unlike dividends, pension contributions are paid before corporation tax is calculated.
How much can I pay into a pension from my company? £40,000 each year, and you can use the previous three unused tax years.
Making pension contributions can be a very tax efficient way of taking money out of your limited company, whilst investing in your own financial future.
Please note: Pension contributions are only a deductible business expense if the contribution is in line with the work carried out by the employer for the company, so not available for ‘directors on paper’. The contributions should also not be more than your company’s income.
2. Relevant Life Insurance
Did you know? You can set up a personal life insurance policy, known as Relevant Life, paid by your company, which counts as a tax-deductible business expense.
So rather than paying your life insurance personally post-income tax, you can pay it from the company pre-corporation tax. A double tax saving, plus protecting your loved ones in the process.
Higher-rate taxpayers can save 49 per cent by paying for their personal life insurance via a relevant life plan. For a basic-rate taxpayer the saving is a still significant 36 per cent.
There are limits to how much life cover you can take out, and the policy must be set up in trust. Specialist financial advice is required to ensure everything is set up correctly.
We’d love to talk to you! We specialise in helping business owners save money and pay less tax, please contact Carlile Alexander Private Wealth for more information.