Tag: tax tip

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Tax Tip – Dividends

If you take dividends out of your business without sufficient profits after tax to cover this they can be classed as ILLEGAL dividends. To avoid this we often end up reclassifying payments as director’s loan account (DLA) but this can lead to additional taxes in the form of Section 455 penalty tax on an overdrawn DLA, class 1A employers national insurance on beneficial loans, and personal tax on beneficial loans. 

To avoid this please stop taking money out of the company and instead check:

  • Will there be sufficient profits left in the business to cover corporation tax? This will require you to have up to date bookkeeping or even management accounts.
  • Will there be sufficient cash left in the business to pay all bills as they fall due? This will require a cashflow forecast. It is particularly important to ensure that you have funds to settle all tax bills when they are due as HMRC take a particularly dim view of business owners helping themselves to cash that should have been used to pay taxes. 
  • Have I completed the correct paperwork? You will need a minute of the board meeting declaring the dividend and a tax voucher when it is paid out or transferred to your DLA?

If you do not have enough money in your business then you will have to find the cash for your personal expenses elsewhere or to alter your lifestyle to live within your means.

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Interest on directors’ loan account (DLA) 

If you have put money into your limited company that has not yet been repaid then you can pay yourself interest on this loan. This can be a tax efficient way to take money out of the company BUT you would need a CT61 form completed for HMRC each quarter. 

If, on the other hand, you have borrowed money from your company then you may face a higher tax charge and even a personal tax charge.  

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Tax Tip – Changes to Companies House reporting 

From 1 April 2027 all small and micro businesses will need to file a profit and loss accounts at Companies House. This makes sense as an anti-money laundering measure but it can mean sharing confidential information such as turnover and margins with competitors. 

As the tax benefits of trading through a limited company are now minimal you may prefer to become a sole trader or partnership BUT remember that MTD (Making Tax Digital) will mean quarterly tax filings from April 2026. 

Talk to us if you want to learn more.

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Tax tip – Alphabet Shares 

All shares of the same class must receive the same dividend. For example, if you have 100 ordinary shares and vote a dividend of £10 per share then each shareholder must receive £10 for each of their shares. These dividends should be paid into an account in the shareholder’s name. 

If you wish to pay different shareholders at different rates then you will need to have different share class. These are often, rather unimaginatively, called A shares, B shares, etc and usually referred to as alphabet shares. Each class may also have different rights (voting, distributions on winding up, etc) It is simplest if these different share classes are created at incorporation.  

Alphabet shares need to be structured correctly to minimise any challenge from HMRC. Definitely not one to do yourself. 

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Tax Tip – Recharging expenses vs disbursements 

If you pay for something on behalf of your customer and then invoice it to your customer you may be able to treat it as a disbursement. This will be an advantage if the supplier doesn’t charge VAT or if the customer can’t reclaim VAT.  

When invoicing disbursements to your customers you don’t add VAT and you can’t claim VAT on the purchase because you are acting as an agent. 

A disbursement must meet 8 conditions. VAT: costs or disbursements passed to customers – GOV.UK 

Most business purchases are expenses, not disbursements, and you should add VAT to the amount that you invoice to your customer. You can also reclaim any VAT that you pay your supplier. The amount you charge your customer is a commercial decision so it may be the cost, or the cost plus a mark up, or any other amount that you agree. 

Some examples of costs that are usually recharges and not disbursements: 

  • Train ticket to visit your client or to travel as part of their job. You should add VAT to any recharge because the flight is for you and not the client. 
  • If recharging postage to your customers you should add VAT even though postage is usually exempt. 

The most common recharge we see is mileage. You can claim the standard mileage allowance (usually 45p but see mileage rates: https://minervaaccountants.co.uk/tax-tip/tax-tip-38/) and reclaim any VAT on the fuel element. When recharging this to the client you would add VAT to the rate (which may be 45p or something else) that you have agree with them 

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Tax Tip

Eye test and glasses  

If you run a limited company and need to use a screen for your work then you can claim the cost of eye tests against tax. You can also claim for your employees which is a small, tax free perk.  

Sorry, sole traders and partnerships can’t claim this. Yet another example of where the rules are different for limited companies and unincorporated organisations. 

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Tax Tip

Mileage rates 

The simplest way to claim your car costs against tax is to claim the standard HMRC allowance of 45p per mile. Most business owners are familiar with this but there are circumstances when the rate is different. 

  1. Above 10,000 tax miles per year the rate is reduced to 25p per mile in recognition that many of the fixed costs have already been covered. 
  1. Carrying a business passenger the rate is increased by 5p per passenger 
  1. If using a BICYCLE rather than a car the rate is 20p per mile 

This standard allowance is to cover: fuel, MOT, insurance, maintenance, road fund licence. It does not include parking and tolls. 

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Tax Tip

Penalties are increasing from this month. These are completely avoidable if you keep proper accounting records and keep them up to date.  

We send our clients several reminders in addition to the reminders that they get from HMRC but, even if you use and accountant, you are responsible for ensuring that everything is submitted correctly, and on time. 

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Tax Tip

As we go into the new tax/payroll year don’t forget to tick the box to claim your Employment Allowance to offset your employers’ national insurance. From 2025/26 this is a maximum of £10,500 per year.

Most small companies can claim unless:

  • You have just one director and that director is the only employee above the secondary class 1 NI limit (currently £5,000pa from 2025/26)
  • If you have a group of companies then only one company in each group can claim the allowance.
  • If more than half your work is in the public sector then you can not claim the allowance.
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Tax Tip – Casual staff 

If you’re taking on seasonal staff over the Christmas period then the normal employment rules apply.  

  1. They must go on the payroll and NOT be paid ‘cash in hand’ 
  1. They may be eligible for a pension under autoenrollment. You can defer this for 3 months which may mean that you don’t need to provide a pension if they are with you for less than this 
  1. If they are self employed you should have a contract to this effect confirming that THEY are responsible for paying their own taxes 
  1. Use the HMRC employment status indicator to see whether they should be employed or whether they can be self employed Check employment status for tax – GOV.UK 
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