We’ve recently given you our Top 10 Personal Tax Tips. So here are our Top 10 Business Tax Tips. These will help you cut your tax bill and keep the cash in your bank account, not the taxman’s.
So, here goes with Tax Tip 1 – are you using the best tax structure?
Have you considered recently (ie in the last 12 months) whether your business would be better off trading as a sole trader, partnership, limited company or limited liability partnership?
Tip: The many changes announced in recent Budgets have moved the goalposts. For many businesses the scales may have tipped in favour of becoming a company, while for a few it may now be better to go back to being a sole trader or partnership. And, for some businesses, limited liability partnerships may be better than either.
Business Tax Tip 2 – could you save money by switching VAT scheme?
If you are not already registered for VAT, do you have a system for making sure that you are still entitled to stay non VAT registered?
Tip: If your sales in the previous 12 months are more than £79,000 (from April 2013) then you MUST register for VAT immediately. So our advice is to set up a system for monitoring your 12 monthly cumulative sales every single month.
If your sales are less than £1.35m a year, are you making VAT potentially much easier and cheaper for your business by making the most of the cash accounting scheme or the annual accounting scheme?
Tip: Many businesses find that annual VAT accounting saves them a lot of time, and cash accounting dramatically improves their cash flow. So, both are well worth exploring.
If your sales (excluding VAT) are less than £150,000, have you considered switching to the flat rate VAT accounting scheme?
Tip: Under the flat rate VAT scheme smaller businesses do not need to calculate the VAT liability from invoices received and issued. Instead they are allowed to pay VAT as a flat rate percentage of their sales.
Tip: Not only could this scheme be simpler to administer, but it could also result in you paying less VAT. But it could cost you more – so proper advice is essential.
Business Tax Tip 3 – Are you paying your spouse a tax efficient salary?
Have you used the legitimate ways to reduce your tax bills by transferring income from a spouse paying tax at higher rates to a spouse paying tax at lower rates?
Tip: At the very least you should aim to make sure that neither spouse wastes their £9,440 tax free allowance – but early professional advice is essential. In particular, care needs to be taken not to divert income deriving from a spouse’s company if that spouse substantially performs the work.
Tip: The salary must be sensible and reflect the work done – and must actually be paid. Details will need to be submitted to HMRC especially if a state pension record is required. If their earnings exceed £109 per week their earnings will qualify them for both basic state pension and the additional state pension and below £148 there will be no NIC liability.
If you are a sole trader, have you considered taking your spouse into partnership?
Tip: Care must be taken to ensure that your spouse’s share of profits is not disproportionate to their share of involvement, and it must be run as a genuine partnership (eg both names on bank accounts, stationery, etc)
Business Tax Tip 4 – What is the most tax-efficient time to buy company assets?
If you are about to invest in a new car, computer or any other business equipment, have you considered the best time to buy them and the best way to pay for them?
Tip: You will get tax relief a lot quicker if you make the investment shortly before rather than shortly after your business year-end.
Tip: A 100% annual investment allowance of up to £250,000 (£25,000 before 1 Jan 2013) on most plant and machinery is available.
Business Tax Tip 5 – Can you claim R&D relief? You may be surprised
If your company invests in Research and Development (‘R&D’), have you planned how to make the most of the up to 225% effective tax relief? You don’t need to have scientists in white coats – you simply need to develop a product or a process in an innovative way, eg to make it faster or smaller. Many companies are doing this without realising that they are eligible for tax relief.
Tip: From 2012, the rate of tax relief was increased to 225% of qualifying expenditure for small companies – but it can be complicated. So, to make the most of one of the most generous tax breaks in the UK tax system, you will need professional help.
Business Tax Tip 6 – Could the taxman class you as an employee of a client….and charge more tax?
If you run a company or a partnership and sell your personal services, knowledge or skills, have you taken appropriate steps to ensure that the IR35 rules won’t cost your business a fortune in additional tax?
If you run a one-man band business (not a limited company), have you made sure that there is absolutely no possibility of the Taxman charging you much more money by treating you as being employed by one or more of your best customers?
Tip: You may firmly believe you are self-employed. But the Taxman may think differently. And it could cost your customer and possibly you a lot of money. So we strongly recommend you take some good advice.
You can start by looking at our summary of the latest IR35 guidance.
Business Tax Tip 7 – Are you one of the 90% of businesses that don’t claim tax relief on properties?
If you own any business property, have you maximised the capital allowances that you can claim?
Over 90% of businesses aren’t doing this!
Tip: It may be possible to get extra tax relief on the features within the business property, even if the property was bought many years ago. A detailed review of the business property can often result in significant tax savings and, in some cases, significant tax refunds on tax paid in previous years. As this involves specialist advice, most businesses have not undertaken this detailed review.
If you own any business property we can arrange an initial free consultation to assess whether there are allowances to be claimed.
Business Tax Tip 8 – Are you benefiting from the large tax reliefs on company pensions?
Do you have a company pension scheme? Are you making the most of pensions as a highly tax efficient way of rewarding and retaining key staff?
Tip: Employer contributions into a pension scheme can provide significant savings for both the employee and the employer. With the advent of auto-enrolment changes, and the requirement for all employers to be making contributions for employees in the near future, it is worth considering how to make savings now.
Have you explored how to use pensions to cut the tax bill on wages and salaries?
Tip: Under what are known as “salary sacrifice” schemes, it is possible to save up to 25.8% in National Insurance contributions on the pension contributions made. These savings can, of course, be shared between you and your staff so that everybody is better off.
Have you considered using one of the more “exotic” types of pension schemes to give you more control and flexibility and allow you and your staff to build up even bigger nest-eggs?
Tip: Some of your options might include an Executive Pension Plan (EPP), a Small Self Administered Scheme (SSAS), or a Self Invested Personal Pension (SIPP). These schemes allow you to invest in a wider range of assets, which may include the premises occupied by your business.
If your income is more than £150,000 have you considered the impact of the changes on your pension contributions?
Tip: Individuals with income in excess of £150,000 can claim a further 25% in 2013-14 tax relief on pension contributions in addition to the 20% reclaimed by the pension provider, subject to meeting certain limits. Higher rate tax payers can still reclaim 20%.
Business Tax Tip 9 – Are you getting the tax right on company cars?
Have you told the Taxman about any changes to your company cars or who uses them?
Tip: Changes to company cars can be reported on form P46 (car) or online and can save employees from paying the wrong amount of tax in the year and receiving a large tax bill later.
If you provide company cars, have you checked in the last year whether you and your employees could be better off by changing your company car and petrol policy?
Tip: The last few years have seen dramatic changes to the way company cars are taxed. Inevitably, the tax on most types of cars is now higher – especially for cars with high CO2 emissions.
If your employees use their own cars for company business, do you know how the mileage rules affect them and the business?
Tip: Employers are able to pay employees up to 45p per business mile tax free, dropping to 25p per business mile after 10,000 business miles for using their cars on business journeys. Where employees receive less than these limits for business journeys in their own cars they can claim the difference as a deduction against their wages and reduce their tax bill.
Have you considered providing your employees with new low emission cars?
Tip: The tax paid by employees on low emission cars is now less than on high emission cars, and you can also claim 100% tax relief when you buy certain low emission cars. Note: This 100% relief is much more generous than the normal capital allowances on standard and high emission cars. It is surprising what cars are now included. A list can be found at www.comcar.co.uk.
Are you utilising the rules for employees taking home company vans?
Tip: From 6 April 2007, unrestricted private use will generate a benefit in kind chargeable to tax of £3,000 per annum, with an additional £550 chargeable if fuel is also provided. Carefully documented procedures restricting private use could avoid this tax. Remember that the definition of ‘van’ may include pick-up trucks.
Business Tax Tip 10 – Are you rewarding your staff tax efficiently…for you and them?
Are you certain that you make the most of tax-free benefits in kind for your staff?
Some of the possibilities include:
- Providing mobile phones (no more than one per employee)
- Subsidising certain forms of transport to and from work – including bus fares
- Providing workplace nurseries and crèches
- Sporting and recreational facilities
- Health checks
- Car parking
- Paying relocation expenses
- Up to £150 per person per year for staff parties
- Making cash awards for contributions to a staff suggestion scheme
- Allowing staff to use pool cars for business purposes
- Paying staff up to an extra 5p a mile if they use their own car to take fellow employees on the same business trip
- Providing company bicycles
- And even… paying employees up to 20p a mile when they use their personal bicycles on business journeys! (or up to 24p a mile for a motorbike)
Have you considered using childcare vouchers to save Tax and National Insurance for both employees with young children and the business?
Tip: Employers can pay child care vouchers to employees of up to £55 per week where the individuals joined the employer’s scheme before 6th April 2011, without the employee suffering Tax or National Insurance.
Where individuals joined the scheme on or after 6th April 2011 then higher rate taxpayers can get up to £28 per week, and £25 per week in 2013-14 (£22 in 2012-13) for additional rate taxpayers without the employee suffering Tax or National Insurance. On top of this the employer can save 13.8% National Insurance on the payments.
Have you looked at the possibility of motivating and rewarding your staff by giving them share options?
Tip: Some commentators regard the government’s Enterprise Management Initiative scheme as a “must” for small businesses who want to motivate and reward their team. Not only is the scheme very flexible, but the tax and National Insurance savings are very attractive, despite the changes to capital gains tax.
If any of your employees have been with you for more than 20 years, do you know how to reward them with a really special long-service present that is completely tax free for both you and them?
Tip: Tax-free gifts can now be worth up to £50 for each year of service (up to a maximum of 20 years).
If your employees work from home, are you using the rules so that you can reimburse them tax free?
Tip: It is possible for you to pay £4pw tax-free without the employee providing any evidence that they have spent money, and larger amounts if they provide evidence of spending
If you would like to arrange a free meeting with a Liverpool accountant to discuss business tax, either at our office or at your premises, please contact us on 0151 724 3960 or by email at [email protected].
Alternatively, you can use our website contact form.
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Added by Jon Davies