SSAS explained
Tax-efficiency
How to Minimise Corporation Tax with a Small Self-Administered Scheme (SSAS)
Why Reducing Corporation Tax Matters
Corporation tax is a key consideration for UK businesses, impacting both profits and cash flow. Many business owners wonder, “How can I reduce my corporation tax and still grow my business?” For small and medium-sized enterprises (SMEs), a Small Self-Administered Scheme (SSAS) offers unique options to minimise corporation tax while building valuable assets, such as commercial property.
What is Corporation Tax?
Corporation tax is the tax on company profits, with the UK corporation tax rate currently set at up to 25% for businesses earning over £250,000 in profit. This tax applies to income from sales, services, investments, and more. Effectively managing corporation tax can help a company retain more of its earnings, allowing for reinvestment and growth.
Sole traders and partnerships do not pay corporation tax; instead, they pay Income Tax on profits through self-assessment. Corporation tax applies exclusively to companies and certain legal entities, making it crucial for business owners to understand ways to optimise and minimise this tax burden.
Understanding how to calculate corporation tax is simple: taxable profits are multiplied by the applicable rate (up to 25% in the UK). A SSAS, like other pension schemes, can help business owners effectively reduce their tax liabilities in a compliant and strategic way.
Should I Leave Money in My Limited Company?
Leaving profits in a company account is one approach to deferring tax, but it isn’t always the most efficient choice. Accumulated profits can face tax liabilities, particularly if withdrawn later as dividends or through company investment. Additionally, holding significant cash within a trading company can impact Business Property Relief (BPR) eligibility, which is key for inheritance tax planning.
Instead of holding funds in the company, using a SSAS allows for tax-efficient investment. This approach keeps funds productive, reduces corporation tax, and even opens up options to buy property as a way to minimise corporate taxes.
How a SSAS Helps Reduce Corporation Tax
1. Tax-Deductible Contributions
Pension contributions made into the SSAS by the sponsoring employer can qualify for corporation tax relief, which means they are deducted from profits before corporation tax is calculated. This strategy reduces taxable income and supports long-term asset growth.
2. Buying Property to Reduce Corporation Tax
Can I buy property to reduce corporation tax? Absolutely. With a SSAS, business owners can buy commercial property, such as a business’ premises, within the pension scheme, creating several tax advantages:
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- Tax-Free Rental Income: Rental income from a SSAS-owned property is not liable to tax within the scheme.
- Tax-Deductible Rent Payments: When a business rents property from the SSAS, those payments are deductible as a business expense, further reducing corporation tax. Unlike with a third-party landlord, a business owner using their own SSAS ensures that they retain the benefit of the rent.
- Capital Gains Tax Exemption: Property appreciation within a SSAS avoids Capital Gains Tax, offering long-term tax efficiency.
Example: Imagine your company rents a property owned by your SSAS. Rent payments to the SSAS reduce your corporation tax liability and go toward building your retirement fund. This creates a productive asset while minimising taxes.
3. Investments with Tax-Free Growth
What lowers corporation tax? Investing through a SSAS lowers tax exposure by allowing business profits to grow tax-free. Any gains made from SSAS investments are exempt from both Income Tax and Capital Gains Tax. This tax advantage helps business owners minimise corporation tax and build wealth over time.
4. SSAS Loanback: Access Cash While Reducing Corporation Tax
The SSAS loanback feature allows business owners under certain circumstances to lend up to 50% of the pension fund back to the company for business purposes. This supports cash flow without sacrificing tax efficiency.
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- Interest-Deductible Loan Payments: Loan repayments count as a business expense, lowering taxable income and, therefore, corporation tax.
- Flexible Interest Rates: By setting the loan interest rate, business owners can further optimise cash flow and build pension value.
Example: A manufacturing company in need of cash flow could use the SSAS loanback to fund new equipment. Loan repayments back into the SSAS reduce the company’s taxable profit while growing the pension fund.
Take Control of Your Corporation Tax with a SSAS
A Small Self-Administered Scheme (SSAS) offers unique ways to reduce corporation tax, improve cash flow, and invest in assets like property—all while building long-term wealth. Ready to explore how a SSAS can benefit your business? Book a call with our team to discuss a tax strategy tailored to your goals..
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