Every accountant has a handful of these files. A profitable owner-managed company, no debt to speak of, and a bank balance that has grown every year since 2021 because nobody ever decided what it was for. The owner is not hoarding it out of strategy. They are hoarding it because taking it out felt expensive, leaving it in felt safe, and no one has ever put the two options side by side on the same page.
The reason this one deserves attention now is that all three of those assumptions changed within the last twelve months. Dividend rates went up on 6 April 2026. The inheritance tax treatment of business assets changed on the same day. And Bank Rate has been held at 3.75% since 30 July 2026, which means the cash is earning something — just not enough to make standing still a free decision.
Why the balance keeps growing
The extraction side got more expensive this April. Following Autumn Budget 2025, the ordinary rate of dividend tax rose from 8.75% to 10.75% and the upper rate from 33.75% to 35.75% from 6 April 2026, with the additional rate unchanged at 39.35% and the dividend allowance at £500. For an owner already drawing to the top of the higher-rate band, every additional £10,000 declared costs £200 more than the same declaration would have cost last year. That is not enough to change anyone's life, and it is more than enough to change their behaviour: the marginal pound stays in the company.
So the balance grows, and it grows in the one place where nobody's job is to look at it. The accountant sees it annually and treats it as a fact about the balance sheet rather than a question. No financial planner sees it at all, because the client has never met one. This is the same structural blind spot we set out in the six signals already sitting in your client file — the difference with cash is that it is the only signal that gets bigger every year it is ignored.
The arithmetic of doing nothing
The following is illustrative — a composite built to show how the numbers behave, not a real client and not a prediction about any particular business.
A fabrication company, turnover £2.4m, net trading profit £310,000, no borrowings. Cash at bank £620,000. Working through what the business actually needs — a quarter's overheads, the VAT and corporation tax reserves, one committed machine order — the genuine working capital requirement comes out at £180,000. That leaves £440,000 of surplus.
Now run the year. Assume the balance sits in an account paying 3% gross, which on £620,000 is £18,600 of interest. Trading profit plus interest takes taxable profits to £328,600, above the £250,000 upper limit, so the main rate of 25% applies and £4,650 of that interest goes in corporation tax. The company keeps £13,950. Meanwhile CPI inflation ran at 2.6% in the year to June 2026, which on £620,000 is £16,120 of purchasing power. The cash worked hard all year and went backwards by roughly £2,170 in real terms.
That is the visible cost, and it is the smallest of the three. A company sitting in the marginal relief band between £50,000 and £250,000 of profits fares slightly worse on the interest, since the marginal rate on profits in that band works out at 26.5%. But the real exposure is not on the profit and loss account at all.
Three tests the cash has to pass
Business property relief. Section 112 of the Inheritance Tax Act 1984 strips relief from any asset that was neither used wholly or mainly for the purposes of the business during the previous two years nor required at the time of transfer for its future use. Surplus cash is the asset HMRC identifies under that heading more often than any other. The authority is Barclays Bank Trust Co Ltd v IRC, decided in 1998, where a trading company held roughly £450,000 in cash: about £150,000 was accepted as needed by the business, and the balance of £300,000 was an excepted asset. Applied to our composite, the £440,000 attracts no relief — which, at the 40% inheritance tax rate, is £176,000 of avoidable exposure sitting in a current account.
The trading company test. Business Asset Disposal Relief requires a trading company: one carrying on trading activities without substantial non-trading activities. HMRC's guidance has long treated substantial as broadly 20%, though the Upper Tribunal in Allam v HMRC in 2021 declined to accept that percentage as the governing test. Cash on its own rarely sinks a company. Cash plus a let property plus a portfolio plus a loan to the owner's other company is how the total quietly assembles — and the relief rate rose to 18% on qualifying gains from 6 April 2026, having been 14% for the year before that and 10% before April 2025.
The small profits rate. Under section 18N of the Corporation Tax Act 2010, a close company is treated as a close investment-holding company unless it exists wholly or mainly for the purpose of trading, or of investing in land for letting to unconnected parties, or as a member of a group doing one of those things. A close investment-holding company gets neither the 19% small profits rate nor marginal relief: 25% applies to every pound. A trading company with a large deposit is not going to fall into that category by accident this year, but a company that stops trading with a substantial balance still on hand can find the character of the entity has changed while nobody was watching.
Nothing on this list is triggered by a bad decision. All three are triggered by no decision at all.
What changed on 6 April 2026
The inheritance tax reform announced at Budget 2024 was revised before it took effect. On 23 December 2025 the government confirmed that the allowance for 100% agricultural and business property relief would be set at £2.5m per estate rather than the £1m originally proposed, and the measure became law in the Finance Act 2026. From 6 April 2026, qualifying assets above £2.5m attract relief at 50%, giving an effective inheritance tax rate of 20% on the excess, and any unused allowance is transferable between spouses and civil partners — up to £5m across a couple. Shares in AIM-quoted companies moved to 50% relief.
Two implications follow, and they point in opposite directions. The higher allowance means far fewer estates face the cliff edge than the original proposal implied, so the panic that ran through the trade press in 2025 was overdone. But the excepted assets rule was never part of the allowance debate and has not changed: surplus cash does not consume the £2.5m allowance, it simply never qualified for relief in the first place. A client who has spent a year reassured that their business is covered may be carrying a six-figure balance that never was. The same holds for the pension change coming on 6 April 2027, which we covered in the trust register as a signal list.
Where the accountant stops
Everything above is accountancy work. Establishing the working capital requirement, identifying the surplus, testing it against the excepted assets rule, checking the trading percentages — that is the firm that prepares the accounts doing what it is qualified to do, and doing it better than anyone else could.
What comes next is not. Deciding what the surplus should do — whether it leaves as remuneration, goes into an employer pension contribution against an annual allowance that remains £60,000 for 2026/27 with up to three years of carry forward, is invested, or is retained against a documented purpose — is regulated advice. An accountancy practice cannot give it without the relevant permissions, and the point of the introducer model is that it does not need to. The division of labour is set out in full in who does what, and the line accountants should not cross; the mechanics of making the introduction are on how it works.
It is worth being honest about why this gap persists. The lang cat's State of Advice Report 2025 found that 9% of UK adults had paid for financial advice in the previous two years, while 91% of those who did found it valuable, and that the average new client portfolio taken on by an advice firm was £411,000 with the average IFA client aged 59. An advice profession of fewer than 5,000 firms, oriented that way, is not out looking for a 48-year-old fabricator whose wealth is a deposit balance inside a limited company. Their accountant is the only professional standing close enough to see it. The advice gap page sets out that structural picture.
Two things worth doing this week
1. Run a surplus filter, not a review. Sort the corporate client list by cash at bank against a rough proxy for need — a quarter of annual overheads. Any client where the balance is more than double that number belongs on a short list. This can be produced from data already in the practice, and for most firms it is an afternoon's work.
2. Put the working capital number in writing once. At the next year-end meeting, agree the figure the business genuinely needs and minute it, together with any documented future purpose for the rest — a named acquisition target, a quoted machine, a lender's requirement. That note does two jobs: it is the evidence the excepted assets test asks for, and it is the moment the client sees the surplus as a separate number for the first time. Most of them have never seen it separated out, and the separation is what starts the conversation.
Common questions
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, not 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.