If you're a company director, it's worth checking whether you're making the most of all the available, HMRC-approved tax efficiencies. Here are some legitimate ways you could reduce your business's tax bill, and your personal one, too.
Pay yourself in a tax efficient way
How you draw money from your company has a significant impact on your tax bill. A common approach is to take a mix of salary and dividends. A small salary (usually below the personal tax allowance) keeps you on the payroll and builds your entitlement to state benefits, while dividends, taken from post-tax profit, are usually taxed at lower rates. Speak to the team at DWilkinson&Company so we can advise on the best balance for your circumstances.
Claiming all allowable business expenses
If a cost is incurred “wholly and exclusively” for the purpose of running your business, it's usually an allowable expense. This can include travel, office supplies, advertising, software subscriptions and more. Keeping accurate records and receipts is key. Every allowable expense reduces your profit and, therefore, your corporation tax bill.
Use of trivial benefits
HMRC allows you to give trivial benefits, such as gift vouchers, flowers, or gift hampers, worth up to £50 (including VAT), up to six times a year per employee. These must not be cash or a cash voucher, must not be a reward for work done and must fall outside the terms of the employment contract. Used correctly, these are tax-free for you and a deductible expense for the company. HMRC's tax on trivial benefits explained.
Mileage claims for personal vehicles
If you use your personal car for business travel (excluding commuting), you can claim mileage at HMRC's approved mileage rates, which are currently 45p per mile for the first 10,000 miles, then 25p per mile thereafter. These payments are tax-free to you and reduce your company's profit.
Review your home office claim
If you regularly work from home, the company can reimburse you for a proportion of your household expenses. You can either use HMRC's flat rate (£6 per week) or claim a reasonable share of actual costs, such as utilities, broadband, and rent or mortgage interest, based on how much space and time you use for work. Find out more about HMRC's working from home tax relief.
Employing your children
You can employ your children on a part-time basis, provided they are aged 14 or over, as long as the work is real and age-appropriate, and you pay them a reasonable wage for the work they do. HMRC's special rules for employing children can be found here.
Use company losses to reduce corporation tax
If your company has made a loss in the current or previous year, you may be able to carry those losses forward or back to offset against profits, reducing the amount of corporation tax you need to pay. The team at DWilkinson&Company can assess your profits and losses and advise on how best to utilise any losses.
Make corporate charitable donations
Making charitable donations through your limited company can reduce your corporation tax. Donations to registered UK charities are deductible from your total profits before tax – as long as they're made without receiving anything significant in return. This means you can support good causes while also cutting your tax bill. HMRC provides an overview of its corporation donations policy here.
Don't forget staff parties
Your company can spend up to £150 per person per year on annual events (such as a Christmas party) without triggering a tax liability, provided they are open to all staff. Directors can join in, even if you're the only employee.
Are you missing out on tax efficiencies?
At DWilkinson&Company, we regularly spot missed opportunities while doing our clients' bookkeeping and accounts. Sometimes it's the little things that can make the difference. If you'd like us to review your accounts and tax calculations to see if we can reduce your tax liability, please get in touch.
