As a small business owner, there are many ways to save tax and become even more profitable in your business. However, with so much to do in your business and so many hats to wear, it can be difficult to keep track of which savings you are entitled to. With this in mind, our Senior Accountant, Sharon Wright, has put together this summary of 12 great tax-saving tips that you may wish to consider over the coming year. Whilst these individual savings may seem small, they can add up, especially if claimed every tax year and by each director (where permissible).
We have also created a handy infographic summarising this information:
Your company can spend up to £150 per head per tax year on annual events that are available to all directors and employees. The event must be annual, for example Christmas party or summer lunch, and the cost must not exceed £150 per attendee. You can hold several events provided each one is an ‘annual event’ and all staff are invited. Spouses and partners can be included as attendees and therefore you can budget for £300 per couple within the concession. You should not exceed the limit of £150 per head otherwise the whole amount will be taxable as a benefit in kind.
A close company can pay trivial benefits to a director or employee, or a member of their family, up to a maximum of £300 per tax year per director/employee. Each benefit must cost no more than £50, must not be cash or exchangeable for cash, and must not be a reward for services or in any way obligatory. Note that if the benefit exceeds £50, the full amount is taxable, not just the excess over £50. This may not seem worth the effort but could save tax and NI of £167 pa for each director who is a higher rate tax payer (assumes 6 benefits of £50 each paid).
If you arrange for your phone contract to be in the company name, rather than your personal name, then the company can pay for the full ongoing costs. No deduction required for personal use.
If you regularly use a computer for business the company can pay for the cost of an annual eye test. Glasses that are prescribed specifically for VDU use, and which are not used for any other purpose, may also be claimed and paid for by the company.
Annual medical check-up
The company can pay for the cost of an annual health check or screening for a director or employee.
The first £500 of the cost of seeking pension advice may be paid by or claimed from the company.
If you are married or in a civil partnership and your income falls within the basic rate band of £11,850 and £46,350, and your partner’s income is less than £11,850, then your partner may transfer up to £1,190 of their personal allowance to you. The person with the lowest income should make the claim online. You can backdate a claim up to 4 years (2015/16 is the first year you can claim). Once the claim has been made it will automatically renew each tax year until either you cancel it or the marriage ends. Those earning above £10,660 but below £11,850 can still transfer £1,190 of allowance but will themselves become liable to pay tax on any income in excess of £10,660. The partner still makes a tax saving of £238, but any extra tax paid by them would reduce the overall savings made.
If the majority of your work is not for Public Sector clients and you have two directors each earning a salary of least £8,424, or an employee who earns at least £8,424, then you could claim the Employment Allowance. This allowance gives relief for up to £3,000 of Employers NI due by the company. Competex can arrange to recover this for you. If you think you may be eligible and have not yet made a claim please let us know. Note that you can make a claim for prior years in which you think you were eligible (up to 4 years after the end of the tax year in which the allowance applies).
Child care vouchers
Arrange for your company to issue child care vouchers to you and you could save up to £933 in tax and NI per parent per year. If your spouse is also a director and receives a salary from the company then they may also be paid vouchers. Employer supported childcare schemes will close to new applicants from 5 October 2018, because the Government are phasing in a new Tax Free Childcare Scheme, so it is important you consider your options before then. See our separate handout on this for more information.
If you or your partner are in receipt of child benefit it could be in your interest to restrict your taxable income to below £50,000 if at all possible. This would avoid the child benefit tax charge which arises when one of you earns more than £50,000 (child benefit is completely withdrawn if either of you earn £60,000 or more). Taxable income is all salary, interest and dividends that are taxable less relevant deductions such as personal pension contributions and GiftAid.
An individual may receive dividend income of up to £2,000 tax free in 2018/19.
Small trading receipts
In 2017/18 a new £1,000 allowance for small trading receipts and property income was introduced. The £1,000 applies to each type of income so you can potentially be exempt from paying tax on the first £2,000 of such income. Restrictions apply, so please consult with your personal tax advisor at Competex.
For more information on any of the above please contact your accountant at Competex.