The purpose of a Personal Budget Review
The purpose of a Personal Budget Review
When trading through a company you can control how much of the profit you draw personally, and can therefore have visibility over your future personal tax liabilities.
March 11, 2024

We have a number of blogs that explain the benefits of incorporating your sole trade business, including this helpful animation that explains why it can be advantageous, as well as this enlightening video which includes specific examples.

We have also explained that incorporation is most beneficial when it is set up efficiently and the new company operated correctly and also some of the responsibilities that come with operating through a company.

Once you have incorporated and are trading through your new company, one of the advantages is that you can control how much of the profit you draw personally, and can therefore have visibility over your future personal tax liabilities, enabling you to save in advance and avoid nasty shocks when your tax return is completed.

We can work with you to set your tax plan – that is what level of salary and dividends you take from your company each year to meet your needs while remaining as tax efficient as possible. One of the key tools we use in carrying out this exercise is a Personal Budget Review – we can only set a tax plan that will work for you if we know how much money you need to live on each year. The Personal Budget Review is a pro forma document that we ask you to complete, setting out all your regular outgoings, so that you (and we) have visibility over your requirements. It is important that you fill this in as accurately as possible, so that you will have the reassurance of knowing that the level of salary and dividends that is set will be sufficient for you. It is a straightforward exercise – simply collating your regular outgoings – but it may not be something that you have thought about before and it can be quite an eye-opener when the information is pulled together for the first time.

As well as being a key part of setting a tax plan, sometimes the Personal Budget Review exercise can highlight other useful opportunities – for example identifying expenses that could be paid for by the company rather than personally, such as pension contributions and some insurances.

To be of the utmost benefit, it is best to have all the information ready at the start of the year, so that your tax bills can be estimated as accurately as possible and you know well in advance what your liabilities will be each January and July.

Although your tax plan will be set using your Personal Budget Review, this does not mean that the tax plan cannot be altered if an unexpected expense arises – you would simply need to get in touch with us and we could quickly let you know the impact on your tax bill of required additional funds.

If you like the sound of being able to match your income from your company with your needs and having visibility over your future tax bills, please get in touch to find out more.

The information contained in this article is based on the opinion of Hive Business and does not constitute formal tax advice. Any tax outcomes will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future. You should seek specific advice before embarking on any course of action. Hive Business does not provide regulated Financial Advice, including advice on investment, insurance or lending products or their suitability for you. This article is provided for information only and does not constitute, and should not be interpreted as, investment advice or a recommendation to buy, sell or otherwise transact, or not transact, in any investment including Bitcoin and other crypto. Any use you wish to make of any information contained within this article is, therefore, entirely at your own risk.

By Sheelagh Jenkins Accountant
If you have any questions or comments about this article, please get in touch.
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