...it’s the way that you do it (or so the song would have it) and that is certainly true in the world of tax.

A little while ago an elderly businessman came to see me for some inheritance tax advice. The conversation soon widened to take in other areas. By the time we had finished, inheritance tax had become only a minor part of our conversation. We ended up saving income tax, inheritance tax, national insurance and even giving the bank manager some good news.

The businessman was the major shareholder in a long established family company. Over the years the business had been very profitable and he had been able to draw a substantial salary, but falling sales were now starting to impact on the results. In order to refurbish the business premises in the hope of boosting trade, he had made a substantial personal loan to the company.

In tax and accounting terms this was not an ideal situation: the loan would be exposed to inheritance tax if he died, he was paying income tax – and the company was paying national insurance - on the salary he drew and the accounts showed a loss which was making the bank nervous. I asked him how he felt about having paid tax on a salary part of which he had then promptly put back into the business. You can imagine his reply. Fortunately there was a way to resolve all of these issues: I advised him to stop taking the salary.

Instead of the salary I suggested he drew back an equal amount each month from his loan. This reduced his income tax liability, reduced the amount the company paid in national insurance, reduced the amount of loan exposed to inheritance tax and removed the salary from the profit and loss account (which significantly improved the forecast result for the year). The tax and accounting consequences of dealing with the payments in a different way were therefore huge. Even the bank was happy.

The moral of the story is that it isn’t necessarily what you do, it’s the way that you do it - and the question you ask your accountant might not necessarily be the one that he answers. He might even say “and that’s not the only thing we can do”.

Paul Aplin OBE is a tax partner with A C Mole & Sons and chairman of the Technical Committee of the Institute of Chartered Accountants in England & Wales Tax Faculty. He and Taunton based tax partner Amanda Gunter can be contacted on 01823 624450, Bridgwater based tax partner Paul Kingdom can be contacted on 01278 446088.