Smart Tax Planning for Owner-Managed Businesses in the UK – 8 Proven Strategies

By KSM Consulting Ltd | Chartered Certified Accountants & Tax Advisors in London

Why Smart Tax Planning Matters for Owner-Managed Businesses

Smart tax planning for owner-managed businesses in the UK isn’t about avoiding tax, it’s about structuring income, timing decisions, and using legitimate reliefs to keep more of your profits.

At KSM Consulting Ltd, we help directors and shareholders plan ahead, stay compliant, and take advantage of all available allowances.

1. Balancing Salary and Dividends

Directors of small limited companies often use a mix of salary and dividends to optimise tax efficiency.

A modest salary ensures NIC contributions for state benefits, while dividends are taxed at lower rates and not subject to National Insurance.

Dividend Tax Rates (2024/25):

• 8.75% (basic)

• 33.75% (higher)

• 39.35% (additional) after the £500 allowance

KSM Tip: Review your mix each year to maximise take-home pay and minimise corporation tax.

2. Maximising Pension Contributions

Pensions remain one of the best tax planning tools for owner-managed businesses.

Company-paid pension contributions are deductible business expenses, reducing Corporation Tax.

The annual allowance is £60,000 (2024/25), and you can carry forward unused relief from the previous three years.

KSM Insight: Employer contributions made by your limited company are fully deductible if they meet the “wholly and exclusively” test.

3. Timing Income and Expenditure

Timing can make or break your tax bill.

Bringing forward allowable expenditure (equipment, software, or professional fees) before year-end can reduce taxable profits.

Deferring income such as dividends or bonuses into the next tax year may also smooth your exposure.

KSM Tip: Align timing decisions with cash flow to avoid liquidity issues.

4. Using the Annual Investment Allowance (AIA)

The AIA allows 100% relief on qualifying capital purchases up to £1 million annually. That includes office furniture, IT systems, and plant or machinery. Proper record-keeping and invoicing are essential for compliance.

KSM Tip: Plan purchases around your accounting period for maximum relief impact.

(Learn more on GOV.UK – Annual Investment Allowance)

5. Claiming Business Reliefs

Many owner-managed companies overlook key tax reliefs:

• R&D Tax Relief: Enhanced deductions or cash credits for innovation.

• Business Asset Disposal Relief (BADR): 10% CGT rate when selling or winding up your company.

• Patent Box Relief: Reduced Corporation Tax on patented innovations.

KSM Tip: Review your eligibility each year; most reliefs require pre-approval or timely elections.

6. Managing Director’s Loans

If you borrow from your company, ensure repayment within nine months of year-end to avoid a Section 455 charge (33.75%).

If you lend to your company, you can charge interest that is deductible for the company and taxable to you.

KSM Tip: Maintain accurate records to avoid HMRC scrutiny.

7. Family Involvement and Profit Sharing

Involving family in the business can be a smart tax planning strategy. Employing a spouse or adult child in a genuine role spreads income into lower tax brackets. Transferring shares allows dividends to be paid at their marginal rate.

KSM Tip: Document every role and payment with contracts and payslips for HMRC compliance.

8. Planning for Exit and Succession

Tax planning extends to your eventual exit. Whether selling shares, restructuring, or passing to family, the structure you choose years in advance determines your tax burden.

Key options:

• Business Asset Disposal Relief (10% CGT)

• Holding companies to separate trading and investment assets

• Family Investment Companies (FICs) for long-term retention

At KSM Consulting Ltd, we model multiple exit routes to help you make informed, forward-looking decisions.

Final Thoughts on Smart Tax Planning for Owner-Managed Businesses

Smart tax planning for owner-managed businesses in the UK means being proactive, not reactive.
With proper structuring, directors can reduce liabilities, protect wealth, and reinvest profits confidently.

KSM Consulting Ltd supports OMBs across the UK in building sustainable, tax-efficient growth strategies.

📞 Call us: 0208 672 3411
📧 Email: info@theksma.co.uk
🌐 Visit: www.theksma.co.uk