With inflation at its highest in recent memory, planned corporation tax rises, and increased overheads in many areas, its never been a better time to turn attention to ways of making the company more tax efficient by taking advantage, at the right time, of some of the allowances available. Every little helps, and its always nice to think you’ve got one back against the taxman! Here are some ideas worth considering if they are applicable to you.
- Pay yourself in a tax-efficient way
This is usually a combination of salary and dividends. For 2022/23 the best amount to pay yourself is likely £9,100pa. as a salary, and the rest through dividends. If you have employees or other directors then this amount could go up to £11,908.
This is due to the employment allowance where the first £5,000 of employers NI is free.
Although it may be the most tax-efficient, there may be other reasons why you should not take your money this way, so it’s a good idea to discuss your situation with us before deciding.
- Put your mobile phone contract in the company name
HMRC allow you to claim the whole expense as tax-deductible, and claim the VAT back, if the contract is in the company name. This is even if there is personal use. If the contract is in your personal name then you need to calculate the business call element to make a claim for business use.
- Treat yourself (and your staff)
This is a little known allowance/benefit that can save a few pounds. You don’t have to pay tax on a benefit to your employees if all of the following apply:
- it cost you £50 or less to provide
- it isn’t cash or a cash voucher
- it isn’t a reward for their work or performance
- it isn’t in the terms of their contract
And the amount rises to £300 for directors! (but not more than £50 per time)
The easiest way is to buy gift vouchers, such as for John Lewis so you can do your weekly shop at Waitrose! But you can otherwise reimburse yourself for pretty much anything up to £50 per time, up to £300 per year.
This is in addition to the £150 allowance for staff entertaining each year.
- Electric cars
If you are thinking of buying or leasing a new car, there are great tax breaks for electric cars. Benefits in Kind are only 2% in 2022/23. You can claim 100% first-year capital allowances (saving £9,500 on a £50,000 car).
Unless the car is used exclusively for business you are unable to claim VAT back on the purchase, but if it is leased you are still able to reclaim 50% of the VAT, even if there is private use.
If you charge it at home, you can claim 5p per mile to help cover the cost. Keep records of the mileage, or find an app to do it.
- Invest in qualifying assets – 100% AIA or 130% Super deduction
Up until 31 March 2023 you are able to claim 130% of the cost of new qualifying Plant and Machinery as an allowable expense against corporation tax.
For some qualifying assets falling outside of this allowance, they may fall under the £1mill Annual Investment Allowance (AIA) which allows 100% of the costs as an allowable tax deduction. This is allowable for all businesses, whereas the Super Deduction is for Limited Companies only.
Of course, there are still considerations to be made, so feel free to discuss the finer details with us if you are unsure what rules apply to you.
For more detail on the Super Deduction, please see the details here: https://www.gov.uk/government/publications/new-temporary-tax-reliefs-on-qualifying-capital-asset-investments-from-1-april-2021
- Corporation tax rises from 19% to 25% for profits over £250,000 from April 2023
Profits under £50,000 will still be taxed at 19%, and then tapered until all are taxed at 25% once you hit £250,000. But that means that profits between £50,000 and £250,000 are effectively taxed at 26.5%, the majority of small businesses are in this range. This means that clever accounting and planning can have a significant effect on post-tax profits.
For example, this year may be the time to consider stock and work-in-progress calculations, or accrued/prepaid income and expenses to bring profits forward into a lower tax year.
- Pension payments
You can make pension payments through the company to reduce Corporation Tax. However, this needs to be considered in conjunction with personal taxes, so please speak to us in advance of doing this.
- Have you made losses in accounting year ends between 1 April 2020 and 31 March 2022?
Due to Covid, the Government allow you to carry back losses made in this period 3 years, instead of the normal 1, against profits made in prior years which you can claim a tax repayment for.
- Don’t let your Directors Loan Account go overdrawn
This can have various tax consequences. Ensure your accounts are accurate and up to date and you don’t withdraw more money than you are entitled to take. Talk to us if any doubts.
- Research and Development Tax Relief
If you are developing new or improved technical processes, products or software, to make advances in science or technology you can claim a tax credit. If the company is making a loss you can claim a cash repayment of corporation tax before you even pay any tax. Speak to us if you think the benefits of this scheme may apply to you.
- Patent Box Scheme
The scheme is aimed at businesses that retain and commercialise existing UK and European patents or develop new patented products. If your business meets the criteria, you’ll be able to enjoy a reduced Corporation Tax rate of 10% on all profits earned from patented inventions since 1 April 2013.
Speak to us if you think you may qualify for this. We may be able to go back 2 years after the accounting period and make retrospective claims.
- Business Asset Disposal Relief
If you want to sell all, or part, of your business and have owned the shares for at least 2 years then you may be able to reduce the capital gain to 10% on all qualifying assets.
Speak to us if you are considering selling your company.
- Utilise your spouse’s tax allowances
If your spouse earns little (or no) taxable income then there is potential to pay them a dividend and/or salary through the company, effectively doubling your low/no tax bands.
- See if there are any industry specific tax reliefs or grants available
In the creative industry, for example, HMRC has guidance on a number of specialist tax reliefs. Check their website for further details and discuss with us the mechanics of claiming any you think may be applicable to you. https://www.gov.uk/guidance/corporation-tax-creative-industry-tax-reliefs
There are always new grant schemes available to help different types of businesses. Check the HMRC website https://www.gov.uk/business-finance-support
Or an online resource such as https://www.grantsonline.org.uk/
Speak to us if you would like to discuss any of them further, or need help preparing the application.
- Sign up to HMRCs help and support email
HMRC have an email subscription that offers guidance and notifications of tax reliefs and grants for small businesses (amongst other things that you may find useful)
Sign up here, and pick the areas of interest to you: https://subscriptions.hmrc.gov.uk/