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.

What to do with surplus cash in a limited company

How it happens

Almost nobody sets out to accumulate company cash. It builds up because taking it out felt expensive, leaving it in felt safe, and there was never a moment when somebody sat down and compared the two on the same page.

A few profitable years later there is a balance on the company account that is well beyond anything the business needs to trade, and it has become a question nobody is asking.

First, work out how much is actually surplus

Cash is only surplus once the business genuinely does not need it, and that is a judgement about your company rather than a formula. Five questions get most owners to an answer:

What is the largest amount the company has ever needed at short notice, and when was that?
How many months of overheads is the balance currently covering, and did you choose that number?
Is there capital expenditure planned in the next three years, and is it budgeted or just intended?
Does the company need to show a cash position to win work, satisfy a tender or pass a credit check?
Has any of it been set aside for something specific that is written down anywhere?

Whatever sits above those answers is the part worth making a decision about.

Three rules that make it a decision

Cash held well beyond the needs of the business interacts with three separate parts of the tax system, and all three get worse the longer the position runs unexamined.

Business property relief. Shares in a trading company can attract relief from inheritance tax, but cash held beyond the reasonable requirements of the business can be treated as an excepted asset and left out of that relief.
Business asset disposal relief. Relief on a future sale depends on the company being a trading company. A large enough non-trading cash or investment position puts that status in question.
The small profits rate. A company that tips into being treated as a close investment-holding company loses access to the small profits rate and pays the main rate on all of its profits.

None of these is triggered by having cash. All of them are about cash that is clearly beyond what the business needs.

What "reasonable requirements of the business" actually means

There is no threshold in the legislation and no percentage of turnover that makes cash safe. The test looks at your company, so what protects a balance is evidence that it has a purpose.

A written cash policy — even a paragraph in the board minutes saying the company holds nine months of overheads and why.
Budgeted capital expenditure, with dates, rather than a general intention to buy something eventually.
A contractual or regulatory reason to hold funds, such as a tender requirement or a bonding arrangement.
A trading history showing the balance being drawn down and rebuilt, rather than only ever rising.

A balance that has risen every year for five years with nothing recorded against it is the hardest case to argue, and it is also the most common.

A worked example

Take a company with £620,000 on deposit, three employees, overheads of roughly £45,000 a quarter and nothing planned in the way of capital expenditure. Six months of overheads would be £90,000, and doubling that to be comfortable gives £180,000.

That leaves around £440,000 the business does not need. It is that £440,000, rather than the whole balance, that is in question under each of the three rules above, and that is earning a deposit rate while the owner has no retirement plan on paper.

The figures are illustrative. The method is the point: separate what the business needs from what has simply accumulated, and an awkward subject becomes a specific number you can make a decision about.

The options, in plain terms

Broadly there are four things that can happen to surplus company cash, and most owners end up doing some of each.

It stays where it is. Sometimes correct, particularly where the business is cyclical or capital expenditure is coming. It should still be a decision rather than a default, because inflation reduces what it is worth every year and the bank statement never shows that.
It goes into the business. Equipment, premises, people, acquisition. The return is usually the highest available and so is the risk.
It comes out to the owner. Salary, dividend or employer pension contribution, each with a different tax cost and a different degree of access afterwards.
It is invested by the company. Possible, and the option with the most consequences attached, because of the three rules above.

Questions owners ask

Is there an amount of cash that is automatically safe? No. The question is always about your company’s requirements, which is why two companies with identical balances can get different answers.
Does moving it to a business savings account change anything? Not for these three rules. Where the cash is held does not change whether the business needs it.
What if we are saving for a purchase? That is a good answer, and it is a much better one if it is written down with a date and a figure before anybody asks.
Does this only matter if I die or sell? The small profits rate question can bite in any year. The other two matter at the point they are hardest to fix.

What to do next

This is one of the few financial questions where your accountant is genuinely the best person to start with. They can already see the balance, the profit history, the capital expenditure and the shareholding, which is most of what the answer depends on.

Ask them two things at your next meeting: how much of the balance they would regard as surplus, and whether the size of it puts any of the three reliefs above at risk. If the answer to the second is yes, it is worth getting proper advice on the rest.

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.

What to do with surplus cash in your company