Whether you are a business owner or considering starting your business, one of the things you will need to manage properly is your finances. As a business owner, you are in control of the finances and managing them, so, how can you make your finances work harder for you and your business?

Tip 1  – Make Use of Free Pension Money

Pension contributions will differ from business owners to employees. It is common for businesses to pay anything from 5 to 10% into the pension of employees without needing anything from the employee. For someone who earns £100,000, this can be up to £10,000 per year and is nothing more than free money that you could be missing out on as a business owner.

Sure, when you are running a business, pensions might be the last thing on your mind. However, pensions are hugely important as a business owner because they offer a unique tax benefit. If you are a director of a limited company, you can make pension contributions from the company. When you do this, it will be considered an allowable expense that will reduce the amount of corporation tax that you have to pay.

Essentially, this means that you have to make pension contributions from the business as it is a tax-efficient way of planning for the future, you can even choose to use your pension to purchase your business premises!

As an example, if you were to take £100 out of the business as a higher rate taxpayer, you would receive just £54 after corporation tax and dividend tax. By comparison, you could put that £100 in the business and receive the whole lot. That’s an uplift of 85%!

Tip 2 – Tax Free Insurance

It is common for employers to offer employees life insurance and this will mean that the employee’s family will receive a lump sum payment should they pass away. This is often calculated as anything from 4 to 7 times their salary, so it could be a significant sum of money.

So, if someone earns around £100,000, this can mean that the family will receive up to £700,000. However, if you are a limited company director, there is no automatic protection unless you have decided to put arrangements in place. If not, then there is a risk that your family will be left with nothing.

When it comes to life insurance, there is an option available as a director of a limited company. This is because it is possible to take out life insurance through the business and much like pension contributions, this will be considered an allowable expense which in turn will reduce the amount of corporation tax you pay.

Tip 3 – Reduce the Tax You Pay

Income tax differs between employees and employers. Employees won’t be able to reduce the amount of tax that they pay but business owners can with some planning. If we consider an employee earning £100,000 per year, they will pay around £34,000 in tax but as a business owner earning the same amount, it is possible to pay around £20,000 in tax, giving you more money to take home.

By using the right mix of dividends to salary, it can make a big difference and help to reduce the amount of tax you pay.

So, as a business owner, it is important that you take advantage of this “free money” as it can help to reduce your tax bill and can ensure that you increase your salary and take more money home.

Are you a business owner looking for financial advice?

Book your free initial consultation today to learn more about how we can help you manage your personal and company. finances.


Capital at risk. Headway are not tax advisers, and that advice should be sought from a taxation specialist.