Most directors spend plenty of time thinking about turnover, cash flow, Corporation Tax and growing their business.
Less attention is often given to the benefits a limited company can provide to its directors.
For many owner-managed businesses, remuneration discussions begin and end with salary, dividends and pension contributions. While these remain important, they are not the only options available.
A limited company may also be able to provide a range of tax-efficient benefits, provided the relevant conditions are met.
Understanding the rules
One of the biggest areas of confusion is the difference between an allowable business expense and an employee benefit.
Some costs are deductible because they are incurred wholly and exclusively for the purposes of the business. Others are provided as benefits to employees or directors and follow their own tax rules.
The distinction matters.
Treating a benefit as an allowable expense, or vice versa, can lead to unexpected tax consequences.
Before reviewing director remuneration, it is worth understanding what qualifies as an allowable business expense and where separate benefit rules apply.
Looking beyond salary and dividends
When reviewing remuneration, directors often consider:
- Employer pension contributions
- Professional subscriptions
- Business mobile phones
- Training and professional development
- Trivial benefits
Each can have a place within an overall remuneration strategy.
However, one benefit is regularly overlooked because many directors simply don’t know it exists.
Company-funded life cover
Death-in-service benefits are common in larger organisations, but many small company directors assume similar protection isn’t available to them.
In fact, many limited companies can provide life cover through a Relevant Life policy.
Where the qualifying conditions are met, the company pays the premiums rather than the director’s post-tax income. For many owner-managed businesses, this can provide a more tax-efficient way of arranging life cover than taking out a personal policy.
Directors wanting to understand how the arrangement works can find more information in this guide to Relevant Life Insurance, including who qualifies and the tax treatment that may apply.
Professional advice remains important
Relevant Life policies are not suitable for every business or every director.
The right approach depends on factors such as company structure, existing pension arrangements, the level of cover required and personal circumstances.
As with any tax planning decision, professional advice should be taken before implementing a new arrangement.
Thinking beyond tax savings
Reducing a company’s tax bill is only one aspect of running a successful business.
Reviewing how the business supports and protects its directors is equally worthwhile.
Many owner-managed companies regularly review salaries, dividends and pension contributions. Taking the opportunity to review employee benefits at the same time may uncover options that have simply never been considered.
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