M.O.N.E.Y. is possibly one of the most important five-letter words. We all want more money, but surely this means that you’ve got to put in more hours…which means less time with your loved ones? What if I told you it’s all about getting the right tax advice? It’s not about earning more but making sure you get the most out of the money you already have.
There are 32 ways to maximise your take home from your Limited Company. Yes – 32! If you don’t know what they are, don’t worry! Your friendly neighbourhood accountant has you covered.
Taking the right salary is a great starting point. You want this to be tax-efficient and tie in with your other earnings.
Dividends can be a super, tax efficient way to take money from your business. It’s the second most used method when it comes to extracting money, after salary of course. The amount is dependent on your circumstances, but £2,000 should be taken out as a minimum as it’s tax free!
There are some employee benefits that can result in significant tax and NI savings.
EMPLOYING FAMILY MEMBERS
Consider employing a spouse/civil partner or family member so that the company can benefit from the additional resource, and the individual can use their personal allowances and lower level tax bands.
Where the company pays for pension advice to be provided to employees, it is tax free up to £500 in value.
GIFTS UNDER £50
A director can be given up to £300 in ‘gifts’ annually, tax efficiently, provided certain conditions are met. And there’s £50 each for your team.
EMPLOYEE CAR PARKING
The company can offer a car park space at or near the office to employees as a tax-free benefit, and also reclaim the VAT.
GIVING SHARES TO FAMILY
If you receive dividends, you should consider giving some shares to your spouse/civil partner if they pay tax at a lower rate than you.
One mobile phone can be given to every employee in the business – including you and family members that are employed – and there is no tax or NIC regardless of whether the phone is used for personal calls, messaging, etc.
Alongside the monthly tax cost savings, life insurance policies can also be written ‘into trust’ so that they are outside the scope of inheritance tax.
Workplace training can cover a wide range of areas that are wholly and exclusively for business purposes.
Provided the cost per attendee is less than £150, an event for staff – for example at Christmas – is not taxable on the employees.
REGISTERED PENSION SCHEMES
Pensions can be a very tax efficient way to put money aside as you pay no income tax or national insurance when the money is paid in. The company also gets a corporation tax deduction on the money they pay in.
PERSONAL USE OF COMPANY ASSETS
If you are considering purchasing an asset that will have a business use, you should consider if you can pay for it via the company.
It can be tax efficient to hold an asset personally and rent it to the company.
SCHOOLS & UNIVERSITY FEES PLANNING
You may pay amounts in education costs, in terms of school or university fees for your family. Substantial tax savings can arise, due to the personal allowance and basic rate band, which are typically unused by children in education.
There are three areas of business travel to consider: travel to and from work, public transport, and travel to a temporary workplace.
SUBSISTENCE & ENTERTAINING
When staying away with work, visiting or entertaining clients, there are certain costs you can claim back.
MUSIC, AUDIO BOOK & AMAZON PRIME SUBSCRIPTIONS
If you are currently paying for a music, audio book or Amazon Prime subscription, you should consider putting the cost of these subscriptions through the business.
HOME WORKING EXPENSES
Paying employees who regularly work from home under a formal arrangement up to £312 a year requires no record keeping and the amount paid to the employee is tax free.
Where an employee uses their own car for business, they can claim 45p for each business mile travelled up to 10,000 miles, and 25p per mile thereafter, without income tax consequences.
BUSINESS EXPENSES PAID FOR PERSONALLY
Expenses of the business that have been paid for personally may be reimbursed by the company and will be deductible against corporation tax. The rules can be complex with grey areas, so care needs to be taken.
POINTS REWARDS CARDS
If an employee has a personal card that they use for business expenses, any points received from the reward card are not taxable on the employee.
CONGESTION CHARGE – COMPANY CAR
If you incur the congestion charge whilst travelling to London using your company car, you can put the cost of the charge through the business.
You may have lent money to the company or have funds available to lend to the company. Or alternatively the company may have money it can lend to you or the employees. Some loans can be tax free.
LUNCHES & SNACKS
Provided all staff are offered the option, providing lunches to staff at the business premises is tax free to the employees, and the business can claim corporation tax relief and recover VAT.
There are three potential ways to help fund childcare in a tax efficient way.
CYCLE TO WORK SCHEME
Bicycles and equipment can be purchased under a ‘salary sacrifice’ scheme so that the cost of the bike and equipment comes out of pay before being taxed.
ONSITE GYMS & SPORTS FACILITIES
You can offer access to sports or recreation facilities, or non-cash vouchers which can only be used to access those facilities as a benefit, if they meet the criteria.
CHARGING ELECTRIC VEHICLES
The cost of charging electric vehicles at the place of employment is exempt from tax and NICs. It makes no difference who owns the car.
The tax on company cars has increased. However, there is one main exception – electric cars.
RUNNING COSTS FOR A COMPANY OWNED CAR
For companies providing car insurance – the increased cost will be deductible for corporation tax purposes, but no additional tax charge will arise on the employee.
That’s a lot to remember, isn’t it? That’s why getting the right advice when it comes to tax is essential. If you’re looking after your pennies, those pounds will look after themselves.
At Jon Davies Accountants, we’ve put our money where our mouth is and invested in the most comprehensive tax-saving software available. Think of it as an MRI for your business tax – a vital health check to take your business to the next level.
This article was taken from our latest JDA Accelerator Magazine – Spring 2021 edition. You can download this by clicking the below button. Thank you.
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