What to do with surplus cash in your company

Cash builds up in a company when profits are higher than what the owner takes out.

7 min read · 24 September 2026 · Written for business owners

£440,000

the business does not need, out of £620,000 on deposit, in the worked example on this sheet

The company in the example is made up

How it happens

After a few profitable years the balance can be far more than the business needs to trade.

Work out how much is surplus

Cash is surplus when the business does not need it. That depends on your company. These questions help:

What is the largest amount the company has ever needed at short notice, and when was that?
How many months of overheads does the balance cover, and was that a deliberate choice?
Is there capital expenditure planned in the next three years, and is it budgeted or only 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?

The amount above what those answers need is the surplus.

Three tax rules surplus cash affects

Cash held beyond the needs of the business affects three separate tax rules.

Business property relief.

From 6 April 2026 business property relief is 100% on the first £2.5 million of qualifying business and agricultural property in an estate and 50% on the value above that, which is an inheritance tax rate of 20% on the excess (Finance Act 2026). Cash the business does not need can be treated as an excepted asset and left out of the relief (Inheritance Tax Act 1984, section 112).

Business asset disposal relief.

Business asset disposal relief taxes qualifying gains at 18%, up to a lifetime limit of £1 million, for disposals from 6 April 2026 (gov.uk, Business Asset Disposal Relief). It depends on the company being a trading company. HMRC treats a company with substantial non-trading activities or assets as not trading, and uses 20% of turnover, assets, expenses or time as its marker (HMRC Capital Gains Manual CG64090). Substantial non-trading assets can include cash the business does not need.

The small profits rate.

A close investment-holding company cannot use the 19% small profits rate on profits up to £50,000 and pays the 25% main rate on all of its profits (Corporation Tax Act 2010, section 18N; HMRC Company Taxation Manual CTM03951; gov.uk, Corporation Tax rates). A trading company that keeps surplus funds on deposit is still a trading company (HMRC CTM60730). The risk arises where the company has largely stopped trading and holds investments.

What counts as a business reason for holding cash

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, for example a board minute saying the company holds nine months of overheads and why.
Budgeted capital expenditure, with dates and figures.
A contractual or regulatory reason to hold funds, such as a tender requirement or a bonding arrangement.
A history of the balance going down as well as up.

A balance that has risen every year with nothing recorded against it has no evidence of a purpose.

A worked example

The company in this example is made up. It has £620,000 on deposit, three employees and overheads of about £45,000 a quarter. Six months of overheads is £90,000. Adding a further £90,000 for VAT and corporation tax reserves and one committed equipment order gives £180,000. That leaves £440,000 the business does not need.

How much is surplus

The company in this example is made up

On deposit£620,000

Six months of overheads£90,000

VAT and corporation tax reserves and one committed equipment order£90,000

What the business needs£180,000

What the business does not need£440,000

That £440,000 is the amount in question under the three rules above.

The method is to separate what the business needs from the rest.

The options

There are four things that can happen to surplus company cash.

It stays in the company.

Where the business is cyclical or capital expenditure is coming, that may be the right answer. The three rules above still apply to any amount beyond what the business needs.

It is spent in the business.

That can be equipment, premises, people or an acquisition.

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.

Investments held inside the company count as non-trading assets under the three rules above.

Questions and answers

Is there an amount of cash that is automatically safe?

No. The test is about your company’s requirements. Two companies with the same balance can get different answers.

Does moving it to a business savings account change anything?

It does not change the position under these three rules. Where the cash is held does not change whether the business needs it.

What if we are saving for a purchase?

Cash held for a planned purchase is held for the business. Record the purpose, the amount and the expected date at the time.

Does this only matter if I die or sell?

The corporation tax rate applies every year. The other two rules apply on a sale or on death.

What to do next

Your accountant can see the balance, the profit history, the capital expenditure and the shareholding.
Ask them how much of the balance, in pounds, they would regard as surplus, and whether that amount puts any of the three rules above at risk. What to do with the surplus is regulated advice where it involves investing or pension contributions. A regulated financial adviser looks at that, and your accountant can introduce you.

This sheet explains how the rules work. It is not advice, and it does not take your circumstances into account. Your accountant can talk it through with you and can introduce you to a regulated financial adviser.