As we approach the end of the 2024/25 tax year, if you have a limited company now is the time for you to take proactive steps to minimise your tax liabilities.
Here are some key areas to focus on:
1. Maximise Allowable Expenses
Ensure that all business-related expenses are accounted for and claimed. This includes:
- Office costs / Home Working costs
- Professional fees (subscriptions, consultants etc)
- Business travel and subsistence, including mileage
- Training and development expenses
- Software and IT subscriptions
- Trivial Benefits
Remember that all expenses must be “wholly, exclusively and necessarily” incurred in the performance of your duties and you should provide evidence of the costs being claimed.
2. Director’s Remuneration
In 2024/25 we have been running a monthly payroll for most clients, to provide you with a tax efficient mix of salary and dividends:
- Salary: Low salary at either £9,096 or £12,570, to qualify for National Insurance credits while minimising corporation tax.
- Dividends: The dividend allowance is £500, and dividends above this are taxed at different rates (8.75% basic, 33.75% higher, 39.35% additional rate). Most clients have budgeted their total withdrawals from the company to remain below £50,270, which keeps dividends in the 8.75% basic rate band for tax.
- If you plan to issue dividends, do so before 5th April 2025 to utilise the current dividend tax rates and allowances.
It is important to ensure that there are sufficient retained earnings to support any dividend payments, otherwise you could experience a S455 tax charge. Your a4c / WIS Accountancy Client Manager would be happy to help you work out what’s available.
3. Profits don’t have to be taken!
Don’t feel that you must always remove available profits from your limited company. If the money is not a necessity to fund your living requirements, then you can leave the profits in the business and declare dividends in later months or years.
Alternatively, if you plan to close the company soon then you could extract the retained profits using business asset disposal relief, which incurs tax at 14% (was previously 10%).
Remember if you work as a contractor then you may need to keep reserves in the business to support you in between contracts, known in the sector as a war chest for time on the bench!
4. Make Pension Contributions
Contributing to a pension via the company is a tax-efficient way to reduce corporation tax and extract funds from the business for future you to enjoy!
Employer pension contributions are tax-deductible, up to the annual allowance of £60,000 (subject to tapering for high earners). If you don’t have a pension scheme, then A4C / WIS Accountancy have an internal pension team who would love to help.
5. Invest in Capital Equipment
If your company needs new equipment, consider purchasing before the tax year-end to claim the Annual Investment Allowance (AIA), which allows full tax relief on qualifying purchases up to £1 million.
6. Review Business Loans and Financing
Interest on business loans is tax-deductible. If you need financing, structuring it correctly can offer tax benefits while improving cash flow.
7. Plan for Corporation Tax Increases
Corporation tax is now on a sliding scale:
- 19% for profits up to £50,000
- 25% for profits over £250,000
- Marginal relief applies to profits between £50,000 and £250,000
If your profits are close to a threshold, consider reinvesting in the business to reduce taxable profit.
Final Thoughts
Taking a proactive approach to tax planning can significantly reduce liabilities and enhance business efficiency.
If you need tailored advice, get in touch—we’re here to help you navigate the complexities and make the most of available tax-saving opportunities for the 2024/25 tax year.