How We Saved a Client Thousands in Tax

Reputable Coventry business case study

If you only meet with your accountant at the end of your financial year, our recent client experience may change how you view your business accounts.

At Cheylesmore Accountants, Coventry-based accountants, we believe that proactive reviews and ongoing tax planning are essential to running a tax-efficient business. This case study covers how early engagement and a detailed review can uncover significant issues – and deliver substantial tax savings.

Identifying Directors’ Loan Account Issues

We were engaged by a new client following the finalisation of their 2024 company accounts. As part of our onboarding process, we routinely cross-check recent accounts to familiarise ourselves with the business and ensure accuracy before moving forward.

During our initial review, we immediately identified a significant problem; the Directors’ Loan Account (DLA) was shown as overdrawn by more than £300,000. Following discussions with the client and their previous accountant, this was attributed to significant withdrawals – which the client strongly disputed.  

Full Review of Historic Accounts

To have a clear picture of the issue, we thoroughly reviewed 4 years of bank statements where it became clear the accounts required a full rework.

Our first step was to request all relevant banking information for the entire period to ensure all business accounts had been declared. During this process, we discovered an Amex business account had not been factored into the previous financial statements.

By incorporating the missing account, we were able to:

• Claim a significant amount of additional business expenses.

• Recover VAT that had previously been missed by obtaining the valid VAT invoices.

Correcting Expenses and Claiming Missed Allowances

Subsequently, we requested all outstanding business documents such as sales & purchase invoices for the four-year period, including any business expenses that had been paid personally. These business expenses assisted in reducing the DLA balance further.  

In addition, we identified several allowances that had not been claimed including:

• Trivial benefits

• Use of home allowance

• Mileage claims

Applying these for both directors across a four-year period, resulted in:

• Approximately £10,000 reduction in the Directors’ Loan Account

• Further associated tax savings

Salary and Dividend Planning

Whilst reviewing the directors’ personal tax returns, we noticed their salary and dividend planning had not been tax efficient. Effective remuneration planning is a core part of our service as experienced Accountants.

For the 2023-24 tax year, we restructured their remuneration to:

• Pay a £12,570 salary (utilising the personal allowance)

• Pay £37,700 in dividends.

This approach significantly improved their tax-efficiency, reduced the DLA by an additional £50,270 and kept their personal tax liabilities minimal.

Recovering Section 455 Tax and Clearing the DLA

During our recalculation of the Directors’ Loan Account, we identified that substantial sums of amounts owed by the company related to Section 455 tax because of the overdrawn DLA which had never been reclaimed from HMRC. Following the correction of the loan position, this became reclaimable too.

Using Losses to Reduce Future Tax

Finally, we identified losses from the 2024 financial year that could be carried forward to offset taxable profits in 2025. This was beneficial given the additional Corporation Tax savings.

The Result: Long-Term Tax Efficiency and Peace of Mind

The work completed not only resolved a significant Directors’ Loan Account issue but also delivered high tax savings, allowing us to implement a clear, tax efficient strategy for future years.

As local accountants in Coventry, we were able to resolve these issues within less than a year of the client engaging our firm. This case highlights the value of working with proactive, detail-driven accountants in Coventry who look beyond year-end compliance and focus on accurate reporting and effective business tax planning. 

If you are looking for experienced accountants in Coventry, who can identify risks, recover overpaid tax and implement a long-term strategy, we’re here to help. Contact us today and see how we can support your business.