At Connolly Accountants & Business Advisors, some of the most valuable advice we provide comes from understanding the bigger picture.
One of our clients, a successful business owner in the automotive sector, initially approached us to prepare the accounts for one of his companies. During our meeting, the conversation turned to a separate commercial property investment he was planning through another business.
As we explored the proposed structure, it became clear there was an opportunity to improve the overall tax position significantly.
The Challenge
The client planned to introduce £3.5 million of personal funds into a company that would purchase and hold commercial property. This would create a substantial Director’s Loan Account, with the company owing the director £3.5 million.
While this is a common arrangement, we identified an opportunity to structure the funding more efficiently.
Our Advice
We advised the client to consider charging commercial interest on the loan made to the company.
By doing so, the company would receive corporation tax relief on the interest payments, while the director would receive interest income personally. When compared with extracting the same value through dividends, the overall tax position was considerably more favourable.
We also reviewed the VAT treatment of the commercial properties and recommended that the client explore an Option to Tax.
As the properties would be rented to VAT-registered businesses within the wider group, this could allow the property-owning company to recover VAT on costs such as professional fees, legal expenses, improvements and ongoing maintenance.
The Result
The strategy delivered an annual tax saving of approximately £100,000 per year.
In addition, opting to tax the properties created the potential for significant VAT recovery on future property-related expenditure, improving the overall return on the investment.
The Bigger Picture
This case demonstrates the value of proactive advice.
What began as a routine accounts meeting uncovered an opportunity to improve the client’s tax position, maximise the value of a major investment, and create substantial recurring savings.
Sometimes the biggest opportunities aren’t found in the accounts themselves, they’re found in the conversations around them.
If you’re investing in commercial property, introducing funds into a business, or reviewing your existing company structure, our team will be happy to help you explore the options available to you.
Thomas Blow, ACCA MAAT
