We often get asked by business owners; “How can I pay less tax?”
There is no simple answer to that question but we’ve detailed seven of the best ways a business can reduce its tax bill, legally, and provide more value to themselves, their family and their team.
Trivial benefits can be provided to employees tax free, provided they don’t exceed £50, are not a cash gift and are not a reward for performance and it isn’t in their contract.
Example of what qualifies as trivial benefits:
- Bottle of champagne
- Team lunch to celebrate a birthday
- Gift vouchers
- Christmas presents for employees
PS – directors can claim up to £300 each per year
Use of home as office allowance
You may be aware of the £6 a week flat rate working from home allowance, which is great for employees.
But did you know you may be entitled to claim much more than that?
If you actually run your business from home all the time or a significant amount of the time, you will be entitled to claim much more.
We created a spreadsheet with guidance notes showing you exactly how to do this and you can download it here.
Transfer shares in your business to your spouse
Even if your spouse is employed its worth transferring some shares to them so that can receive dividends and receive at least £2,000 of dividends to use up their tax-free allowance.
If you’re a higher rate taxpayer this could save you £700 a year in tax and reduce your payments on account.
And, transferring shares to your spouse is tax free.
If you’re considering transferring shares to others whether family members or business partners or employees, we recommend that you speak to an accountant first
Employ your family members
You could employ your spouse, partner or children. Especially if they aren’t already working or have unused personal allowance.
Make sure there’s a role for them and there’s evidence that they do work in the business.
Remember if you’re a basic rate taxpayer this could save you up to 20% tax, a higher rate taxpayer up to 40%.
Pension contributions paid by the company
If you’re running your own company, it’s a far better option for you to get the company to contribute to your own private pension scheme rather than the company workplace pension scheme.
- Up to £40,000 per year can be paid in and is a tax-deductible expense for the company
- You don’t need to contribute anything personally
- You can carry forward unused allowances for 3 years
Claim business mileage at the correct rate
If you use your own car for business, you can claim 45p per mile for the first 10,000 miles in a tax year, 25p thereafter.
This is paid to you tax free and the business can claim the expense as a tax-deductible cost.
Make sure you keep a record of journeys made.
R&D tax credits
Too many companies are NOT claiming these!
If your business has been
- Doing anything in the last 3 years that has been difficult and involved technical challenges
- Where the technical challenges related to making something new, such as a product, process or service
- Where the technical challenges were related to improving an existing product, process or service; to make it better, cheaper or more efficient
- Uses people with appropriate skills and experience to carry out the work
- Incurred internal or outsourced people costs, and materials costs
Then there’s a good chance your business will qualify.
We always recommend that business owners speak to an accountant to get advice tailored to their personal circumstances.
If you’d like to find out how we can help you pay less tax, please get in touch.