Tag: tax tip

Company cars can seem like a good buy for your business but the individual is heavily taxed if they are available for personal use. You don’t even need to drive them, they just need to be available.  

Company cars are not really tax efficient and we often advise clients to buy the car privately and just charge the company for mileage. For one client with expensive taste in cars we even recommended staying as a sole trader rather than a limited company. (I know your mate at the pub probably told you that you could save a shedload of tax by being a limited company but this isn’t always true! Ask us to do the detailed calculations for your chosen car) 

This is because cars are treated as benefits in kind and taxed as if you have additional salary.  The value of this benefit is based on a percentage of list price (including accessories) even if you buy them second hand. The employee pays tax and national insurance and the employer also pays national insurance. 

The percentage used for electric vehicles is much lower than for others although this is increasing each year. 

As well as the vehicle any fuel for personal use is taxed at a flat rate for the year so work out how much you use to see if it is tax efficient. 

If you’re still considering a company car then you may be able to reduce your overall tax burden by many different means: 

• If you lease a car (operating lease, not a finance lease) you may be able to reclaim half the VAT on the lease payments 

• Consider electric vehicles or at least lower emission cars 

• Consider a van if that would be suitable for your work as this is taxed differently 

• If you don’t use the car personally then make sure that it is not insured for personal use and is not kept at your home overnight (difficult if you work from home) 

• If you have a taste for expensive cars it may even be worth you running your business as a sole trader or partnership rather than a limited company  

Ideally, we would sit down with our clients each Feb/Mar to discuss any tax planning required before the end of the tax year. But many of our clients are too small to have the necessary management accounts to provide reliable information, or they just can’t afford a proactive fee so we provide them with a mini-review each year.

When we complete year end accounts for our clients we complete a 10 point tax review for each business as standard to ensure that they are making the most of their various allowances.

1. Are they using the most appropriate trading vehicle eg sole trader or partnership vs limited company?

2. Should they register for VAT voluntarily or if they have exceeded the rolling 12 month limit (currently £90k including reverse charge income)? If already VAT registered are they on the most suitable scheme?

3. Should their spouse be a partner, shareholder, or employee?

4. Are they taking the most appropriate salary vs dividends?

5. Are they approaching certain cliff edges such as 25% corporation tax, higher income child benefit charge, etc and are there legitimate ways to keep their income below these limits?

6. Are they investing in pensions?

7. Should they be paying/receiving interest on their DLA?

8. Are they using part of their home for business and should they claim these costs?

9. Are they eligible for Research and Development tax credits and is it worth claiming (as the fees can be quite high for legitimate experts)?

10.Would they benefit from an EIS/SEIS scheme?

(the rules are slightly different for sole traders) 

(These are generally deductible if they are wholly and exclusively for business purposes) 

1. Office rent 

2. Business rates 

3. Utility bills (electricity, water, gas) for the company 

4. Office cleaning 

5. Telephone (landline) invoiced to the company 

6. Mobile phone (business use) 

7. Internet costs for company premises 

8. Postage and courier fees 

9. Stationery 

10. Printing costs 

11. Business insurance (e.g., public liability, professional indemnity) 

12. Bank charges on business accounts 

13. Accountancy fees  

14. Legal fees (business-related) 

15. Advertising and marketing costs 

16. Website hosting and domain fees 

17. Social media advertising 

18. Search engine marketing (Google Ads, etc.) 

19. Business cards and brochures 

20. Software subscriptions (e.g., accounting software) 

21. IT equipment (computers, printers) 

22. Office furniture 

23. Repairs and maintenance of business equipment 

24. Travel expenses (train, bus, taxi for business trips) 

25. Mileage allowance for business journeys (HMRC approved rates) 

26. Parking fees (business-related) 

27. Congestion charges (business-related) 

28. Hotel accommodation (business trips) 

29. Meals during overnight business trips 

30. Professional training and courses (for ongoing business, but not training for new business) 

31. Membership fees for professional bodies 

32. Subscriptions to trade journals 

33. Uniforms (if required for work) 

34. Protective clothing (e.g., safety gear) 

35. Small tools and equipment 

36. Vehicle insurance (business use) 

37. Vehicle servicing and repairs (business use) 

38. Vehicle fuel (business use) 

39. Hire of vehicles for business 

40. Business-related software development costs 

41. Outsourced services (e.g., virtual assistants) 

42. Freelance contractor fees 

43. Employee wages and salaries 

44. Employer National Insurance contributions 

45. Employer pension contributions 

46. Staff training costs 

47. Staff welfare (tea, coffee, small refreshments) 

48. Business-related bank loan interest 

49. Depreciation (capital allowances on assets can be claimed instead) 

50. R&D costs (if eligible under HMRC rules) 

It’s nice to give clients gifts but, generally, these are not tax deductible and are treated in the same way as business entertaining. 

For a gift to be allowable for tax purposes it must be all of the following: 

• Value <£50 per individual per year 

• Not food, drink or tobacco or vouchers that can be exchanged for goods 

• Displays a conspicuous advert for your business 

You can also deduct the cost of free samples of your own goods given away as advertising. 

It is important that you carry out the following checks before paying dividends: 

1.Ensure that, after dividends are paid, the company will still be solvent. This means that you should prepare management accounts to check the profit available and to estimate the corporation tax due. 

2.Ensure that you pay the same dividend per share to ALL shareholders of the same class. If you wish to pay different amounts you will need to consider either a dividend waiver or different classes of shares eg A and B shares, sometimes known as ‘alphabet’ shares.  

3.Ensure that all dividends are paid into a bank account in the name of the shareholder. Eg a husband’s dividends can not be paid into their wife’s account but the can be paid into a joint account, or one in the husband’s sole name. 

4.Ensure that all dividend payments are accompanied by a minute from the board of directors and a dividend voucher. We have templates if you need them. 

5.It really isn’t good practice to take advance payments of dividends and wait until the year end to sort put dividends as we have seen too many clients with overdrawn DLAs and insufficient profits to clear these. I refer you to point 1! The overdrawn DLA can result in a benefit in kind on the ‘beneficial loan’ even if cleared before the year end.  

It’s often overlooked but, if you work from home because you don’t have other premises then you can claim an allowance for this. Even just using a corner of your kitchen table to do raise your invoices each week and check your bank (I hope you do this at least weekly!) means that you can claim £6pw.  

For sole traders the amount goes up depending on the average number of hours you do each week. 

Directors of a limited company can rent an office to their business. We recommend that they only do this for 5 days a week to avoid paying capital gains tax when they sell their home. The amount of rent can be set at the same level as the costs (we have a spreadsheet to help calculate this each year) so that there is no personal income tax to pay (although it should go on your tax return). 

I have a few friends and clients who are travelling with young children; either homeschooling or before they start school. If you are out of the country for 8 weeks you will need to reapply for Child Benefit (we used to have reciprocal arrangements with EU). 

Recently HMRC have been automatically stopping payments after just a month so something to be aware of.  

The special tax regime for furnished holiday lets is being removed so, in future, they will be treated as any property income: 

• Mortgage relief will be capped at 20% 

• Capital allowances will no longer be available for purchase of new furniture and fixtures. Only replacement relief 

• Business Asset Disposal Relief will no longer be available and no rollover relief for reinvested capital gains 

• Profits will no longer count as relevant earnings for pension tax relief 

• Income must be 50:50 UNLESS a Form 17 has been submitted beforehand showing unequal ownership. 

Do check if you’ve completed your personal tax return for 2024-25. Missing the deadline could cost you in penalties and late planning. 

If you’re a client then please pull your finger out and get the information over to us asap. 

If you’re not already a client and you need a hand then we even have a DIY Tax return webinar to guide you through it. The next one is 7pm on Wednesday 12 November so reply to this email if you’d like more information.  

We’ve also got a webinar on what you need to do to prepare for MTD if you are a sole trader or landlord with income (not profit) about £20,000pa 

The Cyber Resilience Centre for the South West has a Home Office funded course and other support for you to secure your business.  

Cyber Resilience Centre for the South West