Can we tell a client how much cash the company should keep?

Yes, and you are the right person to do it. Sizing a working capital buffer is accountancy work: a quarter's overheads, the VAT and corporation tax reserves, committed capital expenditure, the headroom a lender requires under a covenant. None of that is a regulated activity, and nobody is better placed to put a number on it than the firm that prepares the accounts. What changes character is the next question. Once the conversation moves from how much the business needs to what the surplus should do — a deposit, an investment, an employer pension contribution — it becomes regulated advice, and it belongs to a firm authorised to give it.

How much cash is too much for business property relief?

There is no statutory figure, which is precisely why the question gets left alone. Section 112 of the Inheritance Tax Act 1984 excludes any asset that was neither used wholly or mainly for the business over the previous two years nor required at the time of transfer for its future use. In Barclays Bank Trust Co Ltd v IRC, decided in 1998, a company held around £450,000 in cash; roughly £150,000 was accepted as required by the business, and the remaining £300,000 was treated as an excepted asset. The test is need and documented future purpose rather than a percentage, so the defence is contemporaneous evidence rather than a ratio.

Does surplus cash put Business Asset Disposal Relief at risk?

It can, because the relief requires the company to be a trading company — one carrying on trading activities without substantial non-trading activities. HMRC's guidance has long read substantial as broadly 20% of the relevant measures, although the Upper Tribunal in Allam v HMRC in 2021 declined to treat that percentage as the governing test. Cash alone rarely fails a company on its own, but cash sitting alongside an investment property, a share portfolio or a loan to a connected company is how the total quietly accumulates. With the relief rate now 18% on qualifying gains from 6 April 2026, the cost of failing the test has risen.

Our client is keeping it for a possible acquisition. Does that protect it?

Not on its own. That was very nearly the argument the executors ran in Barclays Bank Trust Co Ltd v IRC: the cash was held as a contingency in case an appropriate business opportunity arose. It did not save the £300,000. A general intention to be ready for something is not the same as an asset being required for the future use of the business, and the distinction turns on evidence created at the time rather than an explanation offered afterwards. Board minutes naming a target, a heads of terms, a quotation for plant, a lender's term sheet — those are the things that turn an intention into a documented purpose.

Is raising this the same as recommending an investment?

No, provided you stop where the regulated work starts. Observing that £440,000 appears to exceed what the business needs, that it currently attracts no relief on death, and that nobody has taken a decision about it, is professional judgement about a client's balance sheet. Naming a product, a provider, a fund or a contribution figure is not, and an accountancy practice without the relevant FCA permissions cannot do it. The clean version of the conversation is to state what you can see, ask whether anyone has looked at it, and with the client's consent introduce someone who is authorised to. Equity & General, FCA number 474163, does the regulated half.

How much can my company pay into my pension?

Why it is worth asking

Most owner-managers take money out of their company in two ways, salary and dividend, and decide the split once a year with their accountant. There is a third route that gets far less attention, and for some people it is the cheapest of the three.

An employer pension contribution is paid by the company rather than by you. It is normally deductible against corporation tax, there is no national insurance on it, and there is no income tax charge on you at the point it is paid. What you give up is access, until you reach the age at which pension benefits can be taken.

The annual allowance

There is a cap on how much can go into a pension each tax year with tax relief, counting everything paid in by you and by the company together.

For higher earners the cap is tapered down, and this is where people get caught. A year with a large dividend, a property disposal or a one-off bonus can pull someone into the taper who does not think of themselves as a high earner at all, and it is often only spotted when the tax return is being prepared.

Allowances and taper thresholds change from year to year. Any figure you read online may be out of date, so check the current year before relying on it.

Carry forward, and why it expires

Unused annual allowance from the three previous tax years can normally be used as well, provided you were a member of a registered pension scheme during those years.

The important part is that it works on a rolling three-year look-back. Each April the oldest of the three drops off, whether or not anyone considered using it, and it cannot be recovered afterwards. For an owner who has had several profitable years and made no contributions, this is usually the largest single number in the conversation, and it shrinks every April.

A worked example of carry forward

An owner has been running a profitable company for eight years and has made no pension contributions at all. They have been a member of a registered scheme throughout, because a small workplace pension from a previous job has been sitting untouched.

They can normally use this year’s annual allowance plus unused allowance from the three previous tax years. What they cannot do is reach back further, and each April the oldest of those three years falls away for good.

For someone in that position the sum available is often the largest single figure in their financial planning, and it shrinks every year they do nothing. That is the reason this is worth asking about now rather than at the next year end.

How much is available depends on the allowance in each of those years, on whether the taper applied, and on what was paid in. It needs working out properly rather than estimating.

The test a company contribution has to pass

For the company to deduct the contribution against its profits, the payment has to be wholly and exclusively for the purposes of the trade. In practice that means the total package — salary, bonus, benefits and pension — has to be reasonable for the work the person actually does for the company.

A contribution broadly in line with what the person contributes to the business is not usually controversial. One wildly out of proportion to it invites a challenge to the deduction. This is a question for your accountant, and it is one they can answer quickly.

Salary, dividend and pension side by side

The three routes out of a company are not ranked. They are a trade between what the money costs to extract and when you can have it.

Salary — deductible for the company, income tax and both classes of national insurance, maintains your national insurance record, and supports a mortgage application most easily.
Dividend — no national insurance, taxed at dividend rates, paid from profit the company has already paid corporation tax on, and only available if there are distributable reserves.
Employer pension contribution — normally deductible, no national insurance, no income tax when paid, and inaccessible until minimum pension age.

For an owner in their fifties with a profitable company and little pension, the third column is usually the one that has been ignored longest and is worth the most.

One change worth knowing about

Unused pension funds and death benefits are expected to come within the estate for inheritance tax from April 2027. A plan built on the assumption that a pension sits outside the estate was built under different rules and is worth revisiting before then rather than after.

Questions owners ask

Can the company pay in more than I earn? Employer contributions are not capped by your salary in the way personal contributions are. They are limited by the annual allowance and by the wholly and exclusively test.
Is it better for the company to pay than for me to? Usually, for an owner-director, because the company pays before corporation tax and there is no national insurance. Whether it is better overall depends on when you need the money.
What if I want to retire before the minimum age? Then a pension should not be the only place the money goes. This is exactly the sort of thing that needs a plan rather than a single decision.
I have several old workplace pensions. Should I combine them? Possibly, and possibly not. Some older schemes carry guarantees worth considerably more than any charge saving. Do not act on this without regulated advice, and do not let anyone rush you.

What to do next

Your accountant already knows your profit, your salary and dividend history and your age, which is most of what determines whether this is worth doing. Ask them whether an employer contribution should be part of the mix this year, and whether you have carry forward about to expire.

If the answer is yes to either, the size and destination of the contribution is a regulated advice question and needs somebody qualified to answer it. Your accountant can point you to someone.

This article explains how the rules work. It is not advice about what you should do, and it does not take your own circumstances into account. Your accountant is the right place to start, and they can introduce you to a regulated adviser if the answer needs one.