ARE YOU VAT REGISTERED
One of the first questions to cover is whether or not you are VAT registered. Being VAT registered comes with some specific benefits, not least being a useful way to help you save tax. VAT often becomes mistaken as something only for big business, but smaller companies can still take advantage of VAT registration. How so?
- For one, you can claim back any VAT incurred when making purchases, increasing profits overall.
- If a client is VAT registered, too, you won’t need to worry about a service cost being too high, as the client can claim back the VAT that you charge, also.
- VAT registration is voluntary if you fall under the compulsory turnover rates.
You might also benefit from a tax point if you sign up to the VAT Flat Rate Scheme. This can be useful if your business isn’t pushing out a significant outlay on expenses, or if your expenses aren’t likely to incur VAT in the first place. This helps to lower the final rate you pay to HMRC in many cases, as the amount is more dependent on what services your business undertakes.
Remember that you must apply for VAT registration if your turnover exceeds £85,000 over a 12-month period. Failing to do so will see you fined, most likely, so if you are near or above this threshold, it’s time to get VAT registered.
EXECUTIVE PENSION SCHEME
Another useful option is that of the Executive Pension Scheme. Used accordingly, this can make it easy to accumulate some significant tax savings. You can invest your pre-tax income into the pension scheme, meaning that you will make a nice tax saving in comparison to investing your post-tax income into a personal pension.
If you work with a financial advisor, you’ll soon see the benefits of using such a system.
One recommended solution to making sure that you can reduce your National Insurance Contributions (NICs) is to make the use of a dividend program. Dividends allow you to do things like:
- Reduce your tax payments in comparison to trading as a sole trader.
- Allow you to pay yourself a lesser salary, perhaps eliminating PAYE/NIC requirements.
However, it’s crucial that you make sure you handle your Confirmation Statement (CS01) submission as soon as possible, as late submissions can come with exceptionally high penalties, negating any of the benefits of moving towards the dividend system as a director and shareholder.
PROVIDING LIFE ASSURANCE
A life assurance policy has become a significant part of the rewards system in the workplace. As a company director, it might be within your interests to suggest setting one up for the business. It may provide beneficial tax savings solution when used in the right industry.
Under this kind of policy, premiums or payouts would not be seen as a taxable benefit for you in a personal manner. This policy makes it an easy way to help reduce taxation. Instead, the company pays a regular-tax premium for a Relevant Life Plan.
Another important part of being a company director is that you could get access to numerous salary options. You could take a salary based on your present personal tax allowance, with the help of Employer Allowance you could reduce all Employee/Employer National Insurance.
You could also look to set your salary within the secondary earnings threshold, which would provide you with a tax saving as well.
BRINGING IN FAMILY MEMBERS
A beneficial way to help combat any tax savings issues you may have is to look at employing either your partner or your children.
- So long as they are capable and suitable to the role they are hired to do; this can work out very well.
- Tasks must be relevant to the role, and the pay must be a legitimate fee for the work carried out.
- Done ethically, this is a reasonable and affordable business expense that can reduce your company tax bill.
You could have a partner/child who is skilled in IT, admin or other services like website design. Bringing them in would allow them to contribute to the business – and anyone under the age of 21 would not be subject to the National Insurance charges often incurred by an employer.
CLAIMING EXPENSES PROPERLY
One of the most undervalued tax tips that you can use without leaning on ethical grey areas is to look at your expenses. Many professionals, directors especially, might find it hard to manage their expenses accordingly.
So long as you do not play fast and loose with the truth, and only claim items genuinely purchased for business needs, you can make a few significant tax savings. Even things like the costs incurred when working from home should be taken into closer consideration.
For example, a business that operates in the IT industry can legitimately use expenses for software and hardware. If they are required to branch into new lines of business (such as video editing) or to help market/improve the business, it’s a viable and genuine expense.
YOUR BUSINESS ENTITLED TO TAX-FREE BENEFITS
The use of tax-free benefits is an easy one to slip through the net but is one of our most useful tax tips. Using tax-free benefits, you can:
- Get your company to pay your phone costs for you, so long as it is provided for you by the business: this reneges all tax costs on your behalf.
- If you need to work from home, you can take around £4/week from the company as a household working cost contribution – over a year, that’s over £200.
- Make the use of company childcare contributions, with up to £55/week permitted towards all childcare costs.
In each case, all costs need to come directly from the business bank account: otherwise, they will still incur personal tax benefits.
We recommend that you take a look at the opportunity to gift a shareholding to your partner. So long as you are married, or you are in a civil partnership, this would allow you to gift some of your shares in your company to your partner.
This is useful for taking yourself out of a higher rate of tax band, but it obviously would depend on the earning credentials of your partner. If they already pay a high amount of tax, it might not be the most suitable solution. Please be aware that this is only recommended with someone who is your partner via marriage or civil partnership, or you could still be taxable for the shares.
MAKING AN INVESTMENT
Lastly, one of the best options to help make some significant tax savings is to invest in an Enterprise Investment Scheme (EIS). These systems work in a matter that allows you to invest as much as £1m. If you hold the shares for up to three years, you could see as much as a 30% reduction on your income tax costs.
So long as you are using your income to invest this can work for you. However, it’s recommended that you undertake independent financial advice to help find out how appropriate this solution may be to your role as a company director.
FURTHER TAX TIPS SPECIFIC TO YOUR BUSINESS
If you feel like the above tax tips have been useful to you, there are many more tips and tricks you could put in place to start seeing immediate results. Working with the right accountancy firm always makes a significant difference to the way that your business manages its money.
At Devonshire Green, we make it super-simple for you to start making ethical tax savings applicable to your business and industry.
Contact us today, and we can help you implement the above tax tips as well as bespoke options perfect for your business.