Transcription
Let's be honest, running a limited company in the UK sometimes feels like a game where HMRC makes the rules, changes them halfway through, and then still finds you for playing by them. But here's the thing, the rules do allow you to win. You just need to know how to play the game smart.
So today I'm going to share with you 37 tax efficient ways you can legally, safely, and very cleverly extract money from your limited company without handing over half your profits to HMRC. There'll be something here for everyone's situation. So go get yourself a cuper and let's go.
Let's start with a classic salary versus dividends. Except thanks to HMRC moving the goalposts every 5 minutes, the old strategy of the low salary, the high dividends isn't always the best move anymore. So, what's the deal?
Now, if your company has employees other than just you, you can claim employment allowance, which wipes out up to £5,000 of your employees' NIC bill. Now, that's increasing to £5,000 from April the 5th. This means you can pay yourself up to the full personal allowance, so £12,570 without triggering tax or national insurance. Plus, you save at least £2,000 in corporation tax. Then you still top up with dividends.
But what if it's just you on payroll? Well, then you stick to a smaller salary around £5,000, which again means no employees' NIC, and take the rest in dividends. And remember, dividends come with a £500 pound tax-free allowance, and they're taxed at just 8.75% in the basic rate band. Way better than 20% income tax. And to report this, well, just submit your SA 100, so also known as the self-assessment tax return, and you're golden. You can find more information on this in our director's salary guide video link in the description.
Now, at number two, pensions might sound boring, but do you like paying less corporation tax and want a comfortable retirement full of holidays and luxury? It wouldn't. Your company can contribute up to £60,000 per year into your pension. No NI, no benefit in kind. And it counts as a business expense, reducing your company's tax bill. So, if your company made £50,000 profit and you made a £10,000 pension contribution, boom, only £40,000 is taxed. That's a £2.5 grand saving if you're in the 25% corporation tax bracket. Plus, you've got £10,000 invested and growing for you tax-free. Don't worry, even if you're in the 19% corporation tax bracket, you still get a nice tax saving of £1,900.
So, what if you need to take money from the company, but you don't want to trigger a tax bill just yet? Well, enter the director's loan account. You can borrow cash from your company tax-free as long as you repay it within 9 months of the accounting year end. If you miss that deadline, HMRC slaps on a 33.75% tax charge until it's repaid. You don't want that. Trust me, that's more expensive than most credit cards and on par with some of the nastier high-interest loans. So, yeah, it's a really good short-term fix, but don't treat it like a bottomless piggy bank or you'll regret it.
Now, moving on. Let's pay some much needed attention to your partner if you have one. That is your spouse is allowed to help you save tax even if they're not the one doing all the grinding behind the scenes. Maybe grinding behind the scenes was the wrong way to phrase that. Uh, anyway, right.
So, here's the play. If they're not earning much or anything, they still have a full £125,000 personal allowance plus a £500 dividend allowance. That's over £13,000 of income you could legally shift into their hands tax-free. Simply transfer shares to them, say 50%, and split the dividends. You've just cut your dividend tax liability by potentially thousands. You'll need to do a proper share transfer via Companies House. And yes, we've got a guide in the description if you need help.
Now, this next one's genius as long as you do it right. You can employ your spouse or children as long as they actually do some work. Now, that could be admin, answering emails, helping with social media, even packing boxes. Pay them a salary within their personal allowance, £12, just over again, and it's tax-free for them and a deductible expense for the company. Win-win. But a word of warning, you must be able to prove they're doing real work. No. Paying your 15-year-old a thousand a month for admin support when their idea of filing is stuffing receipts into a Rice Krispies box and labeling it "important stuff." Keep time sheets, emails, or task lists, they'll all do as evidence.
At number six is something you definitely need to know if you're running your business from home. Whether it's spreadsheets in your spare room or strategy calls from the dining table, your company can actually pay you rent for using your home as an office. Yep, your business can become your tenant. Just don't expect it to do the washing up. Let's say you agree a reasonable monthly rent, say £250 a month for using your home office space. That's £3,000 a year in rental income to you. The company gets to deduct that from its profits and that lowers its corporation tax and then you as an individual declare it as rental income. But you can offset now part of your household costs, the heating, electricity, water, broadband, even a portion of your council tax. Ideally, you want one to cancel out the other. Draw up a simple license agreement. And you don't need anything too fancy. Just outline the rent amount, the room used, and what's included. Keep it tidy and commercial. And keep it realistic. HMRC are daft. If your rent is covering five bedrooms, a pool table, and a hot tub, expect questions.
Next up, ever loaned your own money to your company to keep things moving? Maybe it was to buy new stock, upgrade your website, or just bridge a cash flow gap. Well, guess what? You can charge your company interest on that loan. That interest is a deductible expense for the company, meaning it reduces your corporation tax bill. And for you, well, the interest is personal income, but the first £1,000 falls under your tax-free saving allowance. So, if your company pays you £1,000 in interest and you're a basic rate taxpayer without loads of other interest from savings already, you pay zero tax on it. And here's how to do it. First, draft a loan agreement. If you're clever, you can actually get Chat GPT to draft one for you. Secondly, set a reasonable interest rate. Generally, at the moment, about 3 to 8% is typically fair. It needs to reflect the market. And then thirdly, keep records of payments and report the income in your self-assessment.
Now, are you planning to sell your business, but you don't want to hand 20% to 24% of the proceeds to HMRC in capital gains tax? Say hello to the Employee Ownership Trust, or EOT for short, not ET, that's a totally different thing. EOT. This is a government approved scheme where you sell your company to a trust owned by your employees and if it's done right you pay no capital gains tax on the sale. Zilch, zero, nada. It's how the founders of Richard Sounds and Riverford Organics exited their companies and kept HMRC at arm's length. The perks, you get paid the market value for your shares, you avoid CGT completely, and your employees get a stake in the company, boosting morale and long-term success. This one's a bit more involved. You'll need a valuation, a trust structure, a proper legal advice I'm putting into place. But if you're planning a long-term exit, it can save you thousands in tax. So, worth doing.
Following on from number eight, this one's for you if you're looking to exit partially or fully from your company. Rather than selling your shares to an outside buyer, your company can actually buy them back from you. And here's the kicker. If it meets the right conditions, the money you receive is treated as a capital gain, not a dividend. So instead of paying up to 33.75% in dividend tax, you might only pay 10% or 20% capital gains tax. So let's say you sell £100,000 worth of shares back to your company. If you qualify for BADR, and more on that later, you could pay just £10,000 in tax compared to up to £33,750 if taken as dividends. You'll need to apply to HMRC in advance for clearance. Ensure it's for the right commercial reasons, for example, retirement or even a change in direction, and then follow the correct procedure. But it's a great way to extract big sums from your company without getting slaughtered on tax.
Moving on, this one's a bit niche, but it's super clever. If your company has built up a big chunk of retained profits, you can reduce your share capital and return the excess to shareholders. And when it's structured properly, that money gets taxed as a capital gain and not income, which again means you might only pay 10% or 20% tax rather than 33.75%. For example, if you've got £50,000 in retained earnings and £1,000 of nominal share capital, you reduce the capital and return £40k to yourself. But here's the catch. This needs a formal capital reduction procedure. It needs board resolutions and potentially court approval depending on the structure. Definitely one to do with a solicitor. But when you've got surplus profits just sitting there, this can be a very elegant exit tool, right?
I promised more on BADR. So, here it is. Still thinking about selling your business? Then Business Asset Disposal Relief or BADR is your new best friend. We'll call it BADR for short, just cuz I like the sound of it. BADR used to be called Entrepreneurs Relief and it let you sell your business and only pay 10% capital gains on the first £1 million of lifetime gains. Well, that bit still the same. It's just the name that's changed. That's a potential tax saving of up to £100,000 compared to the standard 20% rate and even more compared to dividend tax. But you've got to qualify. And here's a checklist. Firstly, you've owned at least 5% of the company's shares and voting rights. Secondly, you've been a director or employee. And thirdly, you've held those shares for at least 2 years up to the sale date. For example, let's say you sell your business for half a million. If you qualify for BADR for BADR, your CGT bill is just £50,000 instead of £100,000. That's £50K back in your pocket or, you know, pretty solid upgrade on your car. If your spouse also holds 5% and meets the same criteria, you could both claim better, doubling your £1 million allowance. Smart couple goals.
Something else worth knowing is that every individual gets a capital gains tax allowance each year. For the 24/25 tax year, it's £3,000. Now, that might not sound huge, but if you're planning a share sale or winding up the company or transferring assets, this is free money. Say, for example, you make a £10,000 gain on selling shares. The first £3,000 then is tax-free. So, you're only going to pay tax on the remaining £7,000. Plan your disposals wisely. Spread them across tax years where it's possible using up then your multiple capital gains tax allowances across both years. And if you're married or in a civil partnership, you've got two allowances to play with.
Next up is something simple that's regularly overlooked. Let's say you want to pay different dividends to different people like your spouse, your kids, or investors, but they all own the same class of shares. So dividends have to be issued proportionately. It's a bit rigid, but them's the rules. This is where Alphabet shares come into play. By creating separate share classes, like A shares for you, B shares for your partner, you can choose to pay different dividend amounts to each person at different times. You're not tied to a set ratio. Think of it like playlists on Spotify. Everyone gets their own mix. Let's say you pay yourself a large dividend, but your spouse, who's in a lower tax band, gets a bigger chunk this year because they've got more room in their allowance. Next year, you can reverse it. You'll need to update your articles of association and issue different classes of shares. Speak to your accountant or company secretary to do this properly. In fact, if you want help or advice with any of today's techniques, you can book a free consultation call with a member of my team using the link in the description, which actually is just below that subscribe button.
Moving swiftly on. Do you want to treat yourself or your staff to small perks and gifts without triggering an astronomical tax bill? Well, good news. HMRC lets you give trivial benefits up to £50 per item tax-free. Birthday gift? Yes. Amazon voucher? Definitely. Bottle of bubbly. Oh, go on then. As long as it's not cash, not an exchange for work, and not contractually agreed, you're in the clear. So, just to recap the rules, it's a maximum £50 per benefit. It can't be cash or a cash voucher. It mustn't be tied to work performance. And for directors of closed companies, so basically your own limited, it's a maximum £300 per year total. You can give yourself six gifts a year at £50 each roughly, which equals £300 in total tax-free. That's a cheeky prep coffee, a massage voucher, or an overpriced scented candle whenever you feel like it, courtesy of your own company.
Now, believe it or not, HMRC actually wants you to party. Well, kind of. You can spend up to £150 per head per year on annual events like the company Christmas party, and it's tax-deductible for the company. It's tax-free for the employees, and it's a brilliant excuse for good wine and bad karaoke. The catch, the total cost per head can't exceed exceed £150. Go over even by one pound and the entire amount becomes taxable. Yep, it's a hard line. And the how to it can be one event or multiple as long as the combined cost stays under that £150 per head. They must be open to all employees. Yes, even Dave who keeps stealing your lunch from the work fridge. It's got to include costs like venue hire, food, drink, travel, even accommodation. But what if you're a sole director with no employees? Well, you still qualify. So, yes, you can take yourself out to a Michelin Star dinner and claim it.
Here's a quick one you might be missing. Your company can provide you and your team with a mobile phone, and it's totally tax-free. Yeah, that means you can get the company to buy your iPhone, pay the monthly bill, and you don't pay a penny in personal tax. Even if you use it to scroll TikTok 90% of the time. The catch, only one phone per employee. And the contract must be in the company's name, not yours. So, your company signs a 24-month iPhone contract at £50 per month. That's £1,200 in total. That's a full write-off for the company and zero tax or NIC for you. You can use WhatsApp and business apps to show it's for work use just in case. HMRC. If they ever want receipts, metaphorically, not literally, then you can use those to show it.
Now, if you're a parent running a business, you're already juggling tax codes and tantrums. Major kudos to you. So, let your business help with the child care bill. There are two main options: child care vouchers, and that's only for schemes set up before October 2018, and tax-free child care, which is the current system. With tax-free child care, for every £8 you pay into your account, the government tops it up with £2 up to £2,000 per child per year. Set up an account via the gov.uk portal, link it to your nursery or child minder and pay directly through that platform. Now, this works best for directors who pay themselves a salary as higher earners phase out of eligibility above £100,000. So essentially, if either you or your partner earns more than £100,000 in adjusted net income in the current tax year, you're not eligible. So the government won't top up your child care accounts at all.
So you want a new bike. No, not a Harley-Davidson, a push bike. Your accountant wants to save your tax. The government wants you to be healthier. Solution: The Cycle to Work Scheme. You can buy a bike and accessories through your company and lease it to yourself via salary sacrifice. It's tax-free and NIC-free. You buy a £1,000 bike through the scheme. Because it's taken out before tax, it might only cost you £580 after the savings and a company gets a tax deduction, too. So, what can you include? The bike itself. And if you live in Brighton, this might just be a penny farthing. The helmet, the lock, even mudguards and panniers. Sign up with a provider like Cycle Scheme or Bike to Work. Choose your bike, the company pays for it, and then you repay over time via a reduced salary. After 12 months, you can usually buy the bike from the company at a fair market value, often 5-10% of the original cost. Why do you think all those lovely Lycra-clad city slickers are cycling round on £10k carbon fiber yellows?
Are you working from home a lot? Claim the homeworking allowance. And yes, it's as good as it sounds. Your company can pay you up to £6 per week or £26 per month tax-free to cover increased household costs like electricity, internet, heating, and the emotional trauma of constant Zoom calls. That's £312 a year. No receipts needed. If your actual costs are higher, you can claim more, but then you'll need to provide evidence and justify the expense. You'll need a calculation. Just add the flat rate allowance into your director payroll or reimbursement log. Boom. No tax, no fuss. If you've already claimed rent from your company for using your home as an office, strategy number six, don't double dip. Pick the method that gives you the biggest win.
Next up, if you or a new employee are moving house because of work, your company can pay up to £8,000 of the moving costs completely tax-free. Yep. No income tax, no NIC even. And the company gets to deduct the whole thing. So, what's covered? Well, there's removal vans, legal fees, estate agent fees, temporary accommodation, stamp duty sometimes, and the rules. Well, the move must be necessary for the job. The new home must be significantly closer to the new workplace and also the expense must be incurred within 12 months of the move. Reimburse the employee directly or pay suppliers on their behalf and record it in the books as a tax-free benefit.
Now, at 21, here's one that sounds boring, but trust me, it's worth knowing and I'll make it quick. Your company can pay for your professional subscriptions and it's 100% tax-free as long as they're relevant to your role. Think memberships to ACCA for accountants, CIPD for HR, Law Society for Solicitors, and even Federation of Small Businesses, even sector-specific ones like the Chartered Institute of Marketing. And the benefit, well, there's no benefit in kind for you. It's tax-deductible for the company. You just pay for the subscription from the business bank account recorded as a professional expense and you can check HMRC's list of approved professional bodies on their website. And yes, it's a long list, but no, your gym membership isn't on there. We'll include the link in the description so you can check it out.
Salary sacrifice sounds intense, but it's actually a really chill way to save tax while boosting your benefits. And here's the deal. You give up a chunk of your salary in exchange for a benefit like pension contributions, cycle to work scheme, child care vouchers, low emission company car like an electric vehicle, private health insurance if it's structured right. Because your salary is technically lower, you pay less income tax and less national insurance and plus the company pays less employer NICs. You sacrifice say £300 a month into your pension that reduces your taxable salary by £3,600 a year which can save you over £1,000 in tax and NI depending on your band. Put it in writing, adjust the payroll and make sure the benefit is approved under salary sacrifice rules. A word of warning though, salary sacrifice can affect your eligibility for things like mortgage applications or maternity pay so weigh the trade-offs before diving in.
Now, here's one for the business owners planning an exit or even directors looking to close shop. When someone leaves a company, especially under redundancy or retirement, you can make a termination payment of up to £30,000 completely tax-free. That means you can extract money from your company without paying a penny in income tax or national insurance contributions. And the rules, well, the payment mustn't be contractual. It mustn't be for work already done. It should be compensation for loss of office or goodwill. For example, you close your company and pay yourself a £25,000 termination bonus. No tax, no NI, just a tidy little goodbye present from you to you. Include the payment on your final pay slip. Note it in your closure paperwork and document the reason clearly. Job done.
Moving on to 24. Do you drive your personal car for business? Well, if you do, don't speed past the mileage allowance. You can claim 45p per mile for the first 10,000 business miles in a tax year and 25p per mile after that. So, what counts as business travel? Well, meetings, client visits, business errands like picking up stock, even going to the stationery shop. It's surprising how many journeys you take that actually a lot of people don't class as business, but they are. However, commuting to your regular office, nope, that doesn't count. Let's say you do 3,000 miles for business. That's business. That's £1,350 tax-free. Your company pays you the allowance and you can do that on a monthly basis. The company deducts it from profits and you don't pay any personal tax. Everybody wins. So, how do you claim? Firstly, keep a mileage log or use apps like Mile IQ or Trip Catcher. They're pretty good. Submit monthly mileage expense claims into your company. Then get reimbursed through the company bank account. Basically, you're just transferring it from the company bank account to your personal bank account. And this works for directors and employees, so your team can benefit, too.
Now, let's talk about using a company credit card and why it's smarter than using your personal one for business expenses. When you use a company card to pay for legitimate business expenses like travel, software, stationery, coffee for client meetings, it's all tax-deductible and there's no personal tax charge on your end. If you use your personal card, you have to reimburse yourself, submit receipts, track everything manually. Hassle. But with a company card, no personal tax, no reimbursement faff, ease your expense tracking. Set up a business credit card and look at providers like Capital on Tap, Amex Business, or your bank. Use it strictly for business purchases. No sneaky Nandos, date nights, okay? Just remember to reconcile your statements monthly. Upload your receipts and stay audit-proof. Simple.
A question. Have you got unused holiday? Well, don't let it go to waste. Sell it back to your company. If your employment contract or staff handbook allows it, your company can buy back holiday and structure it in a tax-efficient way. If you didn't take your full 28 days, you can turn some of those days into extra cash. You're not triggering additional employer national insurance contributions if you do it right. So, how to do it? Firstly, add a clause in your employment contract that permits holiday buyback. Secondly, calculate the buyback at your usual daily rate. Thirdly, run it through payroll if needed or use it as part of a termination or a bonus package. Let's say your day rate is £200 and you've got five unused days. That's £1,000 back in your pocket. Just keep the documentation tight and don't make it a routine thing. Otherwise, HMRC might start sniffing around.
Now, in it 27, have you got a side hustle or a second business? You might be able to invoice your main company for consultancy work instead of taking a salary. Now, this works really well if you're a director with a separate consulting company or training business. You get paid as a business, not an employee, which means firstly, you can deduct business expenses. Secondly, you can control the timing and type of income, so you potentially pay less tax. For example, if your main company pays your consultancy £3,000 a month, you deduct costs like laptop, software, co-working space before paying tax. And the how to, well, number one, set up your consultancy properly. Have a written agreement. Ensure the work is outside the scope of your director duties. Charge fair market rates. This needs to be a genuine business relationship, not just a way to avoid payroll. So, keep it clean or HMRC will call it disguised remuneration and come knocking with a very big stick.
If your business does anything innovative like creating new software, products or processes, you could be sitting on a massive tax fund without even realizing it. Welcome to R&D tax credits, where HMRC pays you for solving problems. So, who qualifies? If you're building something that involves overcoming technical or scientific challenges, you might qualify even if the project wasn't successful. In fact, sometimes, especially if the project wasn't successful, if you spend £100,000 building a new software platform, as an SME, you can claim an additional 86% deduction on top of those costs. So that's £186,000 total relief. At 25% corporation tax, that's a £46,500 tax saving or if you're loss-making you can get 10% cash back. So £18,600 in the bank. You need to firstly identify qualifying projects. Secondly, document the challenges and the solutions. And then thirdly, submit a report and R&D computation with your CT600, your corporation tax return. Use the SECE framework. That stands for separate project, expenditure, commercial viability, technical challenge, overall profit goal, and resources used. Oh, and don't wait till year-end. Start tracking now.
Next up, do you want to reward staff and save tax? Share incentive plans or SIPs for short are your go-to. This government-backed scheme lets you give shares to employees completely tax-free if done right. And the result, no income tax, no NICs on the shares. There's corporation tax relief for the company and stronger employee loyalty and retention. Let's say you give each employee £3,600 in free shares annually. They pay zero tax. You claim it as a deduction. Everybody wins. So, how do you do it? Well, you'll need to set up a SIP trust and you'll need professional help here. Follow HMRC rules on qualifying shares. You have to hold shares for five years, for example, for full tax relief. Just as a note, this works really well for limited companies that are looking to grow and build their team loyalty, especially those aiming to attract talent without splashing out on the high salaries.
Now, this next one is a definite when starting a business. If you've got equipment that you personally have paid for previously, but you use in your business, sell it to your company legally and tax efficiently. That's right. If it's used for business, your company can buy it off you. You get cash. The company gets a deductible asset. For example, let's say you personally bought a £1,200 DSLR camera that you now use for marketing. Sell it to the company at a fair market value, say £800. You get that £800 tax-free, and the business writes it off as an expense. So, here's a quick how-to. Number one, get a reasonable valuation. Check eBay or a resale site, for example. Number two, create a sale agreement, even just a one-pager. Number three, record the transaction in your accounts. And that's it, sorted. But only sell items that are genuinely used for the business. No slogging your PS5 to the company and calling it client research. I see you.
Next up, let's talk about something no one wants to think about, but everybody should. Death. If you're a director, your company can pay for your life insurance. And it's not treated as a benefit in kind. It's called a relevant life policy. And it's a special kind of policy designed just for directors and employees of limited companies. And here's why it's a win. The company pays the premiums and claims it as a business expense. You don't pay any income tax or NICs. If the worst happens, your loved ones get a tax-free lump sum, and it doesn't eat into your pension lifetime allowance. If you set up a relevant life policy with £1 million cover, the company pays £50 per month, £600 a year. It saves tax and protects your family, smart, and selfless. We'd recommend speaking to a life insurance advisor or broker who specializes in business policies, someone like Howdens, for example. Not every policy qualifies. It needs to meet specific HMRC criteria. Don't just take out a personal life policy. You'll pay that from taxed income and your company can't claim the cost. Go the relevant route. And just remember, death and taxes, we can't escape either.
Now, do you personally own a course, a logo, some copyrighted material, or even a clever little trademark? Well, you can sell or license that intellectual property to your company and receive royalties or a lump sum. And here's the deal. Your company gets to claim the royalty payments as a business expense. You receive personal income, which may be taxed more favorably than salary or dividends. You retain control over the IP as an individual if it's structured correctly. Let's say you created a coaching framework before you set up your company. You then license it to your limited company for £5,000 a year. The company deducts it. You get paid. That's cash extraction. And here's a quick guide. Identify the IP you own. Create a licensing or sale agreement. Set a commercial rate. Record everything in your accounts. Report the income on your personal tax return. Now, this works best for authors, creatives, consultants, and educators. And yes, you'll want to talk to a tax advisor for this one to avoid falling foul of anti-avoidance rules.
Next up, this one's for business owners who use personal equipment in their business and aren't looking to sell it. If you've got a camera, tools, van, even a desk that you personally own, lease it to your company. You get paid rent. The company deducts the lease payments. Everyone's happy. For example, you own a £2,000 camera and you lease it to your business for £50 a month. That's £600 a year in rental income to you. And because it's rental income, not salary, you can offset some expenses, too. And again, you can do it by just drafting a simple lease agreement, including the item, the monthly rate, and the terms. And base the lease on commercial rates. Use marketplace comparisons, for example. Keep the use exclusive or predominantly for business and then make sure the equipment is actually being used by the equip the business. HMRC won't be amused if you're leasing your under-the-desk treadmill to the company as a meeting space.
Now, do you want to level up your skills? Well, let the company foot the bill. If the training relates to your current role or helps you to do your job better, your company can pay for it and you don't pay any tax on it. Plus, the company gets a deduction. You walk away smarter, richer, and possibly more dangerous than a pub quiz. Let's say you run a design agency and want to learn Adobe After Effects. The course itself is £1,200. So, the company pays, you learn, and it costs you nothing personally. You can do it by making sure the course is related to the business and then pay for it directly from the business bank account. Keep the invoice and the course description as well. And what's not allowed? Well, courses that prepare you for a new trade. Personal development stuff like yoga, life coaching, or how to manifest success, unless that's literally what your business sells.
Do you have a patent or are you thinking about applying for one? Well, with the Patent Box regime, you can reduce your corporation tax to just 10% on profits generated from patented products. Also, the same applies to patented processes or inventions. That's less than half the standard 25% CT rate. So, who qualifies? You need to own or exclusively license a qualifying patent in the UK or EU. And the profits must be attributable to that patent like royalties, sales, or licensing fees. Let's say your company develops a patented medical device. It makes £200,000 in profit. Instead of paying 25% corporation tax, so £50k, you pay 10%, £20k, saving yourself £30,000. And here's a quick how-to. Firstly, file a patent or license one. Secondly, track patent-related income. Thirdly, elect into Patent Box in your corporation tax return and then work with your accountant to calculate eligible profits. This works incredibly well for tech, engineering, or product-based companies. But timing is key. You need to make the election within two years of your accounting period end.
Now, this one's a game-changer and it's all about legacy. If you own shares in a trading business, they may qualify for 100% relief from inheritance tax under what's called business relief. That means, sorry to get morbid again, but hey, death and taxes. No escaping either. When you die, your company shares could pass to your spouse, kids, or whoever with no 40% IHT bill attached. So, let's break it down. You must have held the shares for at least two years. The company must be a trading business, not a property investment or holding company. You must still own the shares at the time of death. If you pass away, hopefully not anytime soon, while owning 100% of your trading company valued at £800,000. If business relief applies, your heirs pay zero inheritance tax instead of £320,000, which would be the standard 40%. Here's how you can do it. Make sure your business is a qualifying trade and not just a shell or investment company. Hold your shares for at least 2 years. Keep your company structure clean. Too much surplus cash or investment activity can disqualify you. Review this as part of your estate planning and definitely talk to a specialist because business relief can make or break a family's financial future.
Next up, let's talk strategy, not structure. One of the most overlooked tools in your tax-saving kit is timing. If you know your income will be lower next year, maybe you're taking maternity leave, cutting back hours, or retiring, it could make sense to defer taking your salary or dividends into that future and lower tax year. Why pay 33.75% dividend dividend tax now when you might only pay 8.75% in a few months? For example, if you're currently earning £90k a year, you've already maxed out your basic rate band. Taking a £20k dividend now means higher rate tax at 33.75%. So another £6,750 in tax. But you know next year you'll only earn £25k. Defer that same £20k dividend to next year and it gets taxed at just 8.75%. So 8.75%. So £1,750. That's a £5,000 tax saving just by waiting. Defer your gratification. And here's a quick guide. Track your income position near the tax year end. Delay dividend paperwork and board minutes until after the 6th of April. Avoid triggering extra tax bands unnecessarily. But basically, make sure deferring doesn't mess with your cash flow, your student loan repayments, or other income-related thresholds like child benefit or personal allowance tapering.
It's your company. You built it. You took the risk. You put in the blood, sweat, and probably cried into a spreadsheet once or twice. You deserve to enjoy the rewards without giving half of it away in tax.