As a company director, you have opportunities to reduce your personal tax liability. With the right strategy, you can make valuable savings while also protecting your company finances.
There are several key strategies to increase tax efficiency for company directors, including:
- taking the right combination of salary vs. dividends
- using personal allowances
- making pension contributions
- claiming allowable expenses
- using capital allowances
- capital gains tax planning
- tax-efficient succession planning
The key is to be proactive and plan ahead with the help of a tax accountant. In this article, we will share 12 personal tax planning strategies to help you understand your options and manage your personal wealth.
A little planning now can lead to significant tax savings later. If you want a bespoke approach to managing your tax obligations, then our tax specialists are here to help. Contact us today to book a consultation.
Why is tax planning important for limited company directors?
As a company director, you have significant flexibility in how you draw money from the company. You may have the opportunity to choose between taking salary, benefits, pensions, dividends, interest, rental income or loan repayments.
Each option has different tax implications and can significantly impact your finances. Therefore, you need to find the most tax-efficient way to withdraw income in a way that benefits you and your business.
Proactive tax planning is the key to saving you and the company money. By anticipating your tax liabilities and structuring your finances efficiently, you can minimise the amount of tax due while remaining compliant with UK tax laws.
How often should you review your tax strategy?
Ideally, you should begin personal tax planning at the start of the tax year, but it’s not a ‘set and forget’ task. If your business has an exceptional year, you may want to take more income, while in a quieter year, you might choose to leave more business assets in the company. Flexibility is key, and a regular review ensures you stay on track while gaining tax benefits.
Key tax planning strategies for company directors
To help you save tax and protect your personal wealth, here are 12 key tax-saving strategies from the experts at Butt Miller:
1. Use personal allowances
By using tax-free benefits like personal allowances and interest income, you can take a portion of your income without paying tax, while your company benefits from corporation tax relief. This is a win-win situation for both your personal and business finances.
2. Making the most of your basic rate tax band
If your total taxable income is below £50,000, you’re paying income tax at a relatively low rate. If you expect higher earnings in future years, drawing dividend income up to this level now can be beneficial. Leaving tax allowances unused means missing out on tax savings.
3. Pension contributions
Pension contributions are a great tool for tax planning. If your company has surplus cash, making pension contributions can be a tax-efficient way to extract value. Not only do pension contributions get tax relief, but they also reduce your company’s taxable profits for corporation tax purposes.
There are two ways to contribute. You can make personal contributions, which are automatically topped up by 25% as the pension provider claims basic rate tax relief from HMRC. Alternatively, your company can make employer contributions, the latter usually being the most tax-efficient option.
Pensions can be particularly useful for business owners looking to invest in commercial property. A pension fund can be used to buy commercial property, such as office premises, and rental income can flow back into the fund tax-free. This can help offset future profits and strengthen long-term financial security.
As a long-term investment, pension funds aren’t necessarily the right solution for every business owner. While the benefits grow as you get older, younger business owners should weigh up their options carefully and view pensions as part of a wider financial strategy rather than a quick tax saving fix.
4. Maintain NI contributions
It’s possible to pay yourself a tax-efficient salary and keep your National Insurance Contributions (NICs) topped up. To do so, aim to pay yourself a salary at or above the lower earnings limit (£6,500 in 2025) but below the primary threshold (£12,570). This ensures you qualify for state pension and other benefits without paying employee NICs.
If your salary falls below the secondary threshold (£9,100 for 2025/26), your company will also avoid paying employer’s National Insurance Contributions (NICs) on it.
5. Consider director’s loans carefully
Taking a loan from your company might seem attractive, but it can trigger tax issues for both you and the company. If the loan isn’t repaid within nine months of year-end, the company may face an additional corporation tax charge. You will also be taxed personally on the loan as a benefit in kind, and if the loan is written off, it may be treated as taxable income.
6. Pay yourself tax efficiently
There’s no one-size-fits-all answer to structuring your income, but a common approach is to take a modest, tax-efficient salary below the personal allowance threshold (£12,570) topped up with dividend income. Not only is this income tax-free but dividends are taxed at lower rates, reducing your overall tax liability.
However, if you have other sources of income or need to secure a mortgage, a higher salary may be more beneficial. The key is to look at your overall financial position, not just your tax savings.
The only way to be certain of your position is to run detailed calculations. Butt Miller’s experienced team can help you weigh up your options and provide bespoke advice for you and your business.
7. Claim allowable expenses and tax deductions
Claiming business expenses is a key form of income tax relief, but it’s often underused. So ensure you track expenses carefully, or you could miss out on legitimate claims to reduce your tax bill. Allowable expenses include:
Mobile phones
If you have a company mobile, you can use it tax-free for both business and personal use, providing the contract is in the company’s name.
Working from home
If you are based at home, you can claim up to £6 per week tax-free without receipts. Alternatively, you can charge rent to your company based on the proportion of your home used for work.
Mileage and motor expenses
If you use your personal car for business trips, you can claim 45p per mile for the first 10,000 and then 25p per mile after that.
Professional fees
You can charge membership fees to the company as long as the organisation is on HMRC’s approved list.
8. Take advantage of capital allowances
Business purchases don’t automatically reduce taxable profits, but they can qualify for capital allowances, which can significantly reduce corporation tax. The annual investment allowance (AIA) allows you to deduct the full cost of qualifying business assets in the year of purchase.
While this doesn’t directly reduce your personal tax liability as a director, it strengthens the company’s financial position.
9. Capital gains tax planning and business asset disposal relief
If you plan to sell your business in the future, you should start capital gains tax planning well in advance. When disposing of shares, the profit is usually subject to capital gains tax (CGT), but with careful planning, you may qualify for business asset disposal relief and reduce the tax rate to 10% (14% from April 2025).
To qualify, you must have owned at least 5% of the company for two years, and the company must be trading, not investment-based.
Capital gains tax planning ensures you meet the requirements and don’t pay more than necessary when the time comes to sell. Understanding what taxes apply to your situation and planning to minimise exposure can save thousands of pounds. Talk to capital gains tax experts at Butt Miller to make sure you don’t miss out.
10. Use your spouse’s allowances
If your spouse is a lower-rate taxpayer, you can use their personal allowance or basic rate tax band by having them receive income from the company. In its simplest form, this could be a salary, but HMRC will reject salary payments to family members if the company doesn’t pay a commercial wage for the work performed.
Making your spouse a company director makes it easier to justify a reasonable salary, but bear in mind that National Insurance Contributions may apply to salaries, and being a company director comes with legal responsibilities.
Giving shares to your spouse may be a more suitable strategy for the family, as they will receive dividend income instead of – or in addition to – salary. The gift doesn’t attract any Capital Gains Tax or Inheritance Tax, but remember that unless your company was set up with more than one type of share, dividends are paid pro rata among the shareholders. Make sure you get the balance of shares between you right.
Always consult a professional tax accountant before making any decisions to ensure you get the best out of your shares.
11. Tax-efficient succession planning
If you are lucky enough to sell your company, estate planning is crucial to minimise your family’s Inheritance Tax (IHT) liability. Business Property Relief (BPR) can help reduce or eliminate IHT on qualifying business assets – provided the business is still trading and has been owned for at least two years.
Alternatively, investing proceeds in the Enterprise Investment Scheme (EIS) may offer IHT relief after two years and provide other tax advantages.
These forms of tax relief are complex, so seeking professional advice is crucial to protecting your legacy and ensuring a smooth transition for your family.
12. Year-end tax planning
Your company’s year-end may not be the same as the tax year-end, so both should be considered when reviewing your tax position.
As your company’s year-end approaches, consider strategies to lower taxable profits, such as making pension contributions, accelerating planned asset purchases, or delaying income recognition until the next financial period. Similarly, ahead of 5th April, reviewing your personal tax position – focusing on income tax relief, tax credits, and dividend tax bands – can help minimise your overall tax burden and maximise available allowances.
Plan ahead with Butt Miller’s tax accountants
Effective tax planning now can help you secure a more stable financial future. By making smart financial decisions, you can free up more income to improve your quality of life, plan for retirement, and achieve personal life goals without unnecessary financial stress.
At Butt Miller, we work closely with company directors to create tailored, tax-efficient plans. Get in touch today to arrange a consultation and take control of your personal tax affairs.
