Archive for the ‘Tax Relief’ Category
Tuesday, April 12th, 2022
This information is aimed at small business owners who are both shareholders and directors of the Limited Company, whose main income is from the Limited Company.
You pay corporation tax on the profits made by your Limited Company at a current rate of 19%. Any profits made after this tax are generally available for you to take from the company.
Any money you take from the company then has tax implications on you personally.
There are three main ways to take money from your Limited Company – Salary, Dividend & Pension Contributions:
- This involves taking the money as a wage and processing it through a payroll scheme.
- The most tax-efficient way to do this is to take a salary at the National Insurance secondary threshold – currently £9,100 per year.
- At this level of salary, there will be no Employers or Employee’s National Insurance to pay. If your personal allowance is not being used up by other income, then there will also be no PAYE to pay.
- The cost of the salary is a tax-deductible expense so you will save corporation tax of 19%.
- If your personal allowance is being used on other income, then you will pay PAYE on the salary at 20% (unless you are a higher rate taxpayer). It is still beneficial to take this salary as you will still be saving the corporation tax at 19%. Effectively you will be paying tax at 1% on your salary.
- Any salary taken over the £9,100 per year will pay Employees National Insurance @ 13.25% and Employers National Insurance @ 15.05% (but you may be entitled to employment allowance towards this cost if you have other employees). It, therefore, becomes less tax efficient to take salaries above this level.
- This involves paying money to yourself from the company as a dividend. This is then declared on your personal tax return as dividend income and is taxed as part of self-assessment.
- Dividend payments are not a tax-deductible expense and therefore you do not save 19% corporation tax. However, the rates of personal tax on dividend income are currently lower than on other forms of income.
- The most tax-efficient way to utilise dividends is to take a salary of £9,100 as mentioned above and then take the remaining profits as a dividend.
- There is an annual dividend allowance of £2,000 taxed at 0%. Any further dividend is taxed at 8.75% up to the basic rate band, 33.75% up to the higher rate band and 39.35% for additional rate income.
- It is important to note that dividends can only be paid if there are sufficient profits in the company. A dividend can not be taken if it would make the profit reserves of the company negative.
- Pension Contributions
- This involves the company making employer contributions into your pension.
- The payments are a tax-deductible expense and so will save 19% corporation tax.
- There is no limit as to how much a company can pay into the pension, but the amount should be justifiable as a reasonable remuneration for the work you do.
- It is also important that the pension payments are ‘wholly and exclusively for the purposes of the trade (for example, are other employees receiving comparable remuneration packages).
- We always recommend that you seek the advice of an Independent Financial Advisor regarding pension contributions.
Please get in touch with us and we will be happy to advise you on how to take your profits from your company in the most tax-efficient manner.
Wednesday, September 15th, 2021
In general, tax-deductible expenses in a Limited Company must be wholly and exclusively for the use of the business.
If an expense has a dual purpose for both personal and business, you can only claim for the business element.
A summary of the rules for typical costs incurred by a company include:
- Staff expenses – As well as the salary and National Insurance contributions you pay to your employees the following costs are also allowable:
- Annual staff party – You can claim for the costs of hosting an annual staff party as long as the following conditions apply:
- The cost does not exceed £150 per head
- The main purpose of the event is to entertain your staff i.e., the majority of the guests should be employees
- The event must be open to all staff.
- It does not have to be a single function, it can be several functions over the year, but the total cost of all the events must not exceed £150 per head.
- Gifts and Trivial Benefits – You can buy small gifts for your employees, which will be fully allowable with no further tax and NIC implications provided the following conditions are met:
- It costs £50 or less to provide
- It isn’t cash or a cash voucher
- It is not a reward for their performance
- It is not included in the terms of their contract
- Eye tests and glasses – You can claim the cost of an eye test, only if you are required to use visual display equipment as part of your everyday job. You can also claim the cost of glasses only if the prescription is for screen-based work, not for a general prescription.
- Travel costs – You can claim for travel-related expenses for any business trips that you make. You cannot claim for the costs of your general commute (i.e. travel from home to your permanent place of work). Costs you can claim are as follows:
- Mileage – You can claim mileage for any business trips you make in your personal vehicle. HMRC approved mileage rates are as follows:
- Car or van – 45p per mile for first 10,000 and 25p over 10,000 miles
- Motorcycle – 24p per mile
- Bicycle – 20p per mile
- Transport fares – train tickets, flights, taxi fares etc.
- Parking charges and toll fees
- Accommodation for overnight trips – You can claim for the costs of accommodation for overnight business as long as the costs are reasonable and not excessive.
- Meals – You can claim for the costs of meals while working away in one of two ways:
- Actual costs incurred – you can claim for the costs of any food or drink purchased whilst on a business trip. You must keep evidence of the costs incurred.
- Using HMRC benchmark scale rates. These are approved rates set by HMRC that you can pay to cover the cost of subsistence while working away. You do not need to keep evidence of every cost incurred but there must be some evidence of checking that the employee did incur a cost. The rates are as follows:
- Minimum journey time – 5 hours – £5
- Minimum journey time – 10 hours – £10
- Minimum journey time – 15 hours (and ongoing at 8 pm) – £25
- General office costs – Postage, stationery, printing costs and other consumable office supplies are all allowable costs
- Use of home as office – You can claim for costs for using your home for business in one of two ways:
- Claiming a flat rate expense using HMRC approved rate of £6 per week
- Claiming a portion of your home expenses such as utilities. The calculation will be based on the number of rooms used for business and how long you use the rooms for
- Equipment – Purchases of equipment such as computers, printers and other office furniture like desks and chairs are subject to tax relief by way of claiming capital allowances.
- Protective clothing:
- The costs of protective equipment required for the business such as hi-visibility jackets, safety boots and safety helmets are an allowable expense.
- Uniform that is required to be worn by you and your employees is also an allowable expense
- The cost of normal clothing purchased for business, such as a new suit for a meeting, is not an allowable expense.
- Mobile phone:
- You can claim the full costs of a mobile phone bill as long as the contract is in the company name.
- If you pay for a mobile phone bill in your personal name, or your employees name, then only the business-related calls are allowable.
- If you pay for the full cost of a personal mobile phone bill, then this will be taxed as a benefit in kind.
- Landline and Broadband:
- If the landline and/or broadband is used solely for business, then the costs are fully allowable
- If landline and/or broadband is used for both business and personal, then you can only claim for the business portion. This will need to be broken down separately, for example using an itemised bill.
- Insurance – You can claim the cost of insurance as long as it is taken strictly for business purposes. Common types of business insurance include professional indemnity, public liability and employers’ liability insurance
- Relevant life cover – Relevant life cover is an allowable business expense. It must be a relevant life cover policy; standard life insurance policies are not a tax allowable expense.
- Professional fees – Payments for professional services such as accountants or solicitors’ fees are an allowable expense as long as the service is carried out solely for business purposes.
- Financial costs – bank & credit card charges and interest on loans and hire purchases are an allowable expense
- Marketing and Advertising – These costs are an allowable expense as long as they are incurred solely for business purposes
- Training – Training costs are an allowable expense as long as the content relates to your trading activity. Training courses to learn a new skill are not an allowable expense unless you can show that it will improve your business.
- Professional subscriptions – Subscription costs are an allowable expense as long as they are directly related to your trading activity.
If you are unsure if a cost is tax allowable or would like further advice on any of the above, then please get in touch with us.
Thursday, May 11th, 2017
Over 600 pages of the 2017 Finance Bill have been hastily axed in order to pass the Bill prior to parliament being dissolved.
Unfortunately, two of the casualties of this cull were the micro-trader and property allowances which were due to take effect from 6th April 2017.
As things stand taxpayers are advised to record all sources of income regardless of how small and to watch this space for further information.
Wednesday, March 15th, 2017
Micro-traders are to benefit from new tax breaks!
With effect from 6th April 2017, two new allowances will come into effect thanks to the rise in eBay trading and Airbnb.
To try and remove some of the confusion that surrounds when a ‘hobby’ becomes a trade the government have announced two £1,000 allowances to be known as:
• Micro Entrepreneurs Allowance and
• Property Allowance
So how will this work?
Well, any individual who receives gross income of less than £1,000 a year from a small trade or land and property will no longer be required to tell HMRC and will not need to register for a self-assessment tax return. Alternatively, if their income exceeds £1,000, then they can opt to make a deduction from gross earnings of £1,000 and report no expenses, this is particularly useful for a micro trader with limited expenses.
These new reliefs were created with the online trader in mind but of course, may benefit many small traders from cake decorators to dog walkers.
Thursday, November 10th, 2016
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HMRC have published a new guidance explaining how the residence nil rate band (RNRB), or home allowance, for inheritance tax applies in most circumstances.
An estate will be entitled to the RNRB if the:
• individual dies on or after 6 April 2017
• individual owns a home, or a share of one, so that it’s included in their estate
• individual’s direct descendants such as children or grandchildren inherit the home, or a share of it
• value of the estate isn’t more than £2 million
An estate will also be entitled to the RNRB when an individual has downsized to a less valuable home or sold or given away their home after 7 July 2015.
The maximum available amount of the RNRB will increase yearly .
More details are available here
If you would like to discuss the above please call Cheadles accountants in Stafford on 01785 254550
Tuesday, November 1st, 2016
Announced in the March 2015 budget and brought into effect from April 2016, farmers have been given greater flexibility with an extension to the two-year farmers averaging rules. The new rules that allow farmers the option to average profits over five years will run alongside the existing two-year averaging system. With farmer’s profits often affected by uncontrollable external factors like the weather, a year of high profits can often be followed by a year of losses. It is hoped that the new option will increase tax planning abilities in these situations.
The relief is also available to market gardeners and the term ‘farming’ includes the intensive rearing of livestock or fish on a commercial basis for the production of food for human consumption.
The general rules will still stay the same where relief is only available to sole traders and partnership. It is not available to companies or those using the cash basis and calculations are done on an individual basis. This means calculations should be on individual partners rather than the partnership as a whole. Claims cannot be made in the year of commencement or cessation and losses will still be treated as NIL profits.
To claim relief over five years a ‘volatility condition’ still needs to be met, this is done retrospectively. The original two-year rules gave full relief if the profits of one year were 70% or less than the other and marginal relief where profits were between 70% and 75%.
The ‘volatility condition’ requires the four previous year’s profits to be averaged and compared to the current claim year profits tadalafil over the counter. If one profit is 75% or less than the other a claim can be made, marginal relief no longer applies.
Five-year averaging will require an increase in time-consuming and complicated calculations, however, may not lead to greater tax savings. It is believed there will need to be large fluctuations in profits for the new five-year rules to be beneficial. Averaging will need to be carefully considered especially with possible changes to subsidies and support following Britain’s exit from the EU.
If Cheadles Chartered Accountants in Stafford can be of assistance with any of the above please call on 01785 254550