Tax relief: Gift Aid is a way you can increase the value of a charitable donation - at no extra cost to you. If you pay tax in the UK, a charity can reclaim 25% of your donation from tax you have paid. You should be aware that if you have not paid enough tax to cover the Gift Aid portion of the donation, HMRC may recover unpaid tax from you.
Example: If you donate £100 to a charity, the total donation is worth £125 to the charity (the Gift Aid portion being £25). And, if you are a 40% taxpayer, you can also claim a tax refund of £25 for yourself – via your own Self Assessment Tax Return.
Yes - assuming they are adults, and provided the salaries, and any other benefits you pay them, are commercially justifiable.
These benefits could include:
- A company car
- Medical insurance
- Making payments into a registered pension scheme
However, HMRC could consider the overall package excessive, when they take into account the value of the work done by your son and daughter. They could possibly “disallow” some of the payments – then your business will not get tax relief on all of the costs – which would be bad news.
So, ensure their pay is the market rate for what they do in order to justify their pay. You should also make sure that they receive and sign a formal contract of employment.
Once we are past April, HMRC will be issuing 2017/2018 Income Tax Returns.
There are good reasons to be ahead of the game and submit your Tax Return early:-
- You will be able to see your tax liability well in advance and have time to save for it.
- If you are due a repayment, you will receive it sooner if you submit your Tax Return earlier.
See AMS early bird offer for completing and submitting Income Tax Returns from £96.50 +VAT
VAT registration is a problem facing small businesses (such as builders; car mechanics and domestic cleaning companies etc.) which make sales, principally, to the general public. When their annual turnover exceeds £85,000, they must register for VAT and then pay 1/6th of their gross sales to HMRC. However, there are ways of avoiding or delaying VAT registration:
Deliberately restrict annual turnover to less than £85,000
Some businesses restrict their annual turnover to below £85,000, to avoid VAT registration, by refusing to accept new customers; or by taking longer holidays when they don’t trade. This does sound quite drastic – but it does prevent a big step backwards in profit.
Incorporate the business into a Limited Company
If a sole trader (or Partnership) – selling goods or services to consumers – is getting close to the VAT threshold of £85,000, they can transfer the business to a Limited Company. This resets the VAT turnover to zero – buying a lot more time before having to compulsorily VAT register, and possibly saving up to £14,000 in VAT. It’s important to be aware of one’s rolling 12 month turnover figure because if the threshold is exceeded, the business will be forced to register for VAT, and the registration would automatically be transferred to the Limited Company.
Split the business into two or more businesses
Splitting a business into two separate trading entities (generally new Limited Companies) where one or both are below the VAT threshold, makes it possible to save a lot of VAT.
However, if the split is artificial, HMRC can, and will, treat all sales as being for one business for VAT threshold purposes. So it’s important that the separate businesses are autonomous, with separately identifiable costs. For example, one cannot break a business into two if they use the same staff, premises, marketing literature/website etc. And it is vital to have sound reasons why one might split up a business – perhaps for geographical reasons, or because products or services are developed for a new customer market.
I thought I’d give a list of certain expenses that aren’t tax deductible – but which regularly get claimed, or questioned, by clients.
Unless you need protective clothing, or have to wear a uniform, most clothing is not tax deductible. It doesn’t matter if you only ever wear ‘that suit’ for work, you can’t claim for it as an expense. This has been tested in court (by a Labour peer, no less) and is clear-cut;
This is not something that is claimed, but some clients think increasing depreciation will help to reduce their tax bill. In actual fact, it is just an accounting adjustment and is tax neutral. The actual purchase of fixed assets (equipment, vehicles) is used as the basis for the tax relief.
Although the cost of eye tests are claimable for workers using PC’s – under Health & Safety legislation, the cost of the glasses themselves is generally not claimable because the worker does not use them ‘wholly, exclusively and necessarily’ for their work – but also for personal use. An exception would be prescription safety glasses if the worker only wore them at work.
Although entertaining potential, or existing, customers can be put through a business’s accounts – and reimbursed to a director/employee, there is no deduction for Corporation Tax or Income Tax purposes. So, if a meal out is part entertaining and part subsistence for a director/employee, it is worth calculating the split between the two.
We sometimes get asked, ‘if I pay more dividends how much tax will that save me?’. But, unlike wages and salaries, dividends are not tax deductible against a Company’s profits.
Although removal expenses (up to £8,000) paid for by an employer can be tax deductible, this is only where the employee/director is starting a new job in a new area, or if the place where the duties are performed changes. Tax relief on removal expenses cannot be claimed just because a director moves slightly nearer a place of work.
Although a director/employee can claim for meals bought whilst at a temporary workplace, one cannot claim for doing the week’s shopping and then taking food to work each day – because it would not then be considered ‘attributable to the journey’.
Hire car and mileage
If one uses a hire car in the business, one cannot also then claim the HMRC Approved mileage rates (of 45p and 25p) – because these rates are supposed to cover the wear and tear on personally owned vehicles.