Kirk Rice Blog

5 Essential Tax Questions for Business OwnersWritten on June 4, 2026 by Alex Taylor

Alex, Corporate Tax Director, answers five commonly asked business tax questions that you should consider an essential part of your tax plans.

1. Capital Allowances – Annual Investment Allowance and Full Expensing

All businesses have expenditure which is either revenue or capital in nature. Revenue is something that is immediately consumed such as a telephone bill.

Capital items are where the business derives a benefit over several years. For instance, this could be the purchase of a computer server or laptop. Businesses don’t always get full write down of capital items in any one year.  Historically, the government would have set rates over several years.

However, in recent times, the government has wanted to encourage investment and therefore introduced the Annual Investment allowance.

The current allowance is £1,000,000 which came in from January 1, 2019, and has now been permanently set from the 1 April 2023 to remain at £1,000,000.

In addition, the government have also introduced a further capital allowance from 1 April 2023 known as Full Expensing. This relief enables a full deduction of cost at 100% on the purchase of qualifying plant and machinery and a 50% allowance for special rate assets. There is no cap on the amount of expenditure as with the super deduction, but it differs to the Annual Investment allowance with more restrictions and the potential for a clawback of the allowance on disposal.

Full Expensing and the 50% first-year allowance are only available to companies within the charge to Corporation Tax; they do not apply to sole traders or partnerships.

The Annual investment allowances should be ample for most businesses. Along with the additional reliefs of the super deduction and full expensing for companies there are now significant tax reliefs available for business and companies considering investing in new plant and machinery.

An important tip is that if you are planning significant capital expenditure then consider speaking to us as there are some rules and restrictions to consider.

2. Company Cars – Not the Perk it Once was but Still Worth Looking Into

This question, particularly relates to the use of company cars within Limited Companies. Being offered a company car is not the perk it once was. Government policy changed in the 1990s due to the desire to reduce CO2 emissions. The result was that company cars became expensive from a tax point of view. Essentially, the higher the Co2 emissions of the car, the more tax you pay. Full electric cars benefit from the lowest taxable benefit and if choosing a hybrid electric then the further the range the lower the benefit.

Nowadays manufacturers are producing cars with zero or low levels of Co2 emissions, which can attract a lower tax liability. It’s worth considering these vehicles and crunching the numbers.

Hybrid and electric cars have low or zero Co2 emissions and can still be prestigious if that’s important to you.

For instance, Porsche offers both the Taycan and Macan in electric variants. It’s worth bearing in mind the government have started to increase tax charges on hybrids and electric vehicles, but it’s certainly worth looking into.

3. Profit Extraction – Dividends Marginally Remain the Best Option

How a director or business owner should extract money out of their limited company is a common question. There are two options: via salary or dividends. Directors receive a salary whilst shareholders receive dividends.

In terms of salaries, they attract national insurance contributions, therefore they are generally an expensive way of extracting money from a company whereas dividends don’t.

Dividends are therefore one of the reasons why people choose them over salaries. In 2016 a new dividend tax was introduced which resulted in dividends becoming more expensive and this has continued up to today with the tax-free dividend allowance now set at £500.  At Kirk Rice we have looked at the numbers and we know that dividends marginally remain the best option.

Making contributions to a pension scheme is another viable option.

Finally, if the Director has invested money into the company, paying interest on the loan is a good way of extracting money from the business as it is free from national insurance.

4. Non-Working Spouse – Income Split Between the Family can be More Tax Efficient

If a business owner, who runs his business either through a partnership or company is doing well and making a healthy profit, then he may well be paying a lot of tax from the business income.

Additionally, the non-working spouse could become a shareholder of the company and receive dividends. In that way, income can be split between the family in a more tax efficient way. In order to avoid being caught by the Settlements Legislation it is essential that the transfer of shares to a spouse is an outright gift of ordinary shares with full rights (including rights to capital on a winding up) rather than just a right to income.

5. Entertaining– Costs aren’t Tax Deductible

A common question is related to how entertaining costs are treated from a tax point of view.  I’m asked this question a lot. Businesspeople want to entertain customers and suppliers, but they’re uncertain as to the tax nature of these costs. Unfortunately, entertaining costs are not tax deductible for the company. Furthermore, VAT incurred on the entertaining is not reclaimable.

However, particularly with a limited company, there is no benefit for the director or shareholder to incur these costs themselves i.e. as a taxable benefit, it is still worth passing these costs through the company. This is particularly true if you use entertaining to generate new business.

Staff entertaining is tax deductible. If you provide staff entertainment, for instance with Christmas parties, team building and so on, these costs are accepted. You do need to be aware however that there is a £150 limit per person in a tax year so it’s important not to exceed that.

Get in touch if you’d like to discuss tax implications on your business. Email info@kirkrice.co.uk to arrange a call with one of our specialists or get in touch here.

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Please note: This article is correct as at the publication date. The answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future. Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of relief from taxation are subject to change. The Financial Conduct Authority does not regulate tax planning.