Business plan

What do you want from your business planning? Start with the end in mind

02 February 2022

Many equity directors of SME type businesses (usually defined as up to 249 staff) plan every aspect of their business to get the most from the assets that they have available. Sometimes referred to as 'sweating the assets', it's a process of deploying each asset in the right place to make it as effective as possible. Of course, it's not going to get any easier when Corporation Tax rates rise in the tax year 2023/2024 (25% for profits above £250,000 gross).

Good business planning starts from the day you open the doors and start trading, to the day the business is sold or wound down, whatever the plan is. Any story, business or otherwise, has a start and an ending, and the Federation of Small Businesses has some interesting stats on the 2021 position in the UK here:

The most recent publication of Companies House register activities, published in June 2021, notes that the average age of a company on the total register at the end of March 2021 was 8.5 years. This has fluctuated over time – however, the average age of a company has gradually declined from 10.7 years at the end of March 2000 (source: )

With this in mind, there should be a plan and time scale for the end to ensure sufficient time is available to achieve any agreed value. Many businesses accumulate cash positions in the business journey and taking this out at the end, perhaps using Business Asset Disposal Relief (previously known as Entrepreneurs' Relief) to reduce any tax taken might be one objective. More can be found here:

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Seek qualified accounting advice for your own business planning and possible exit.

Director pension contributions (and carry forward?)

Pension contributions from the company for the directors can be an efficient way of using accumulated profits to offset corporation tax, whilst helping key individuals to build their pension savings.

In theory, an employer can pay any amount of pension contribution into a registered pension scheme for an employee. However, as you would expect, it's not that simple.

Firstly, corporation tax relief isn't automatic and is at the discretion of the employer's local tax inspector. For tax relief to be given on employer pension contributions, these must be deducted as an expense in calculating the company's profits, and to be deductible as an expense, they must be incurred 'wholly and exclusively' for the purposes of the employer's trade – i.e., the size of the contribution must be commensurate with the employee's role in the business. Your accountant will be able to advise on this point.

Secondly, it is important to remember that employer contributions count towards the individual's annual allowance, whether that is the standard £40,000 gross pa from all sources, or a lower allowance if the individual is subject to the money purchase annual allowance (MPAA) or tapering of the annual allowance. If the company wishes to make a high level of pension contribution on behalf of an employee / director, and if available, it may be possible to carry forward unused annual allowance from previous tax years. Again, suitable financial advice would be needed on this point to avoid incurring tax penalties.

Key person protection

As noted at the start of this blog, planning is vital to get the most out of the company's assets. These assets also need protecting, and business owners will be all too familiar with the need to insure property, machinery, computers, public liability and so on. However, the need to protect key individuals within a business is not so well understood, even though it could be just as important.

It's easy to understand what could happen to a business if vital equipment failed or if the premises in which it is located was rendered unusable by fire or flood, as an example. What would happen, though, if a key employee or director became ill or died? This is where key person protection comes into its own. A key person is someone whose absence from the company through illness or death would have a serious effect on profitability. It doesn't have to be an equity director – it could be someone with no financial stake in the business, but who is fundamental to the company nevertheless.

Key person protection is intended to cover future loss of profits caused by a key individual's absence (including finding and training a replacement, and the business lost through the individual's illness or death). There are a range of ways in which this type of cover can be calculated and established, and it is important to discuss the business's needs carefully with a qualified adviser to ensure that the correct level and duration of cover is put in place.

Thinking about what it all means?

Don't forget to plan what you want to do when you leave a business. It's probably been your whole life for quite some time, and there is likely to be more to life than just work. Are you ready? It can be quite a shock if you're not.


Chapters Financial Limited is well placed to help employers and business with this planning and how it might look.We would be pleased to speak with directors/owners of your company to ensure that you meet the requirements needed. This should not be seen or used as individual advice or employer specific advice and you should seek independent financial advice for your own circumstances.

Keith Churchouse FPFS
CFP Chartered FCSI
Chartered Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899

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