Make your limited company more tax efficient by spending before your year-end
16th July 2020
We’ve all had lots to think about these past few months so being strategic about what you spend and when might not have been top of your list. But there are tax-efficient ways to make the most of the money in your company and mitigate your corporation tax liabilities, and you need to take account of them before your year-end passes by.
Buying that new laptop, PC or other office equipment just before your end gets you tax relief quicker. Your Corporation Tax is due nine months and one day after your year-end. If you buy the equipment in the first week of your new financial year it would be 21 months before you felt the benefit so if you have any spending on the cards, do it as close to your year end as you can to maximise the taxation benefits.
As a director of a limited company, the maximum you can contribute as an employee to a company pension as an individual is the lower of £40,000 or 100% of your salaried earnings. This doesn’t include dividends, only the amount you take as salary via PAYE.
We tend to find employer contributions are easiest and best all around. Employer pension contributions made by the company are also limited to £40,000 each year (although you can add unused amounts from previous years to increase this) and receive Corporation Tax and National Insurance relief. If you are planning to make a lump sum payment into your pension, make sure you do this before your year-end to get the benefit.
Directors’ trivial benefits
We’ve written before about the snappily-named trivial benefits scheme and it’s another legitimate way for directors of limited companies to benefit while reducing the company’s Corporation Tax bill. Directors and staff can be given vouchers up to the value of £50 as a thank you. The vouchers can’t be redeemable for cash and must not be in place of a bonus or be a reward for a something the person has achieved at work – for example winning a new client.
You can award a maximum of £300 including VAT per director per year, but there’s no cap on the amount that staff can be awarded.
Expenses and mileage
These can be really easy to overlook, but a few pounds here and a handful of miles there can really add up. Make sure that what you’re claiming is legitimate – we wrote a blog about what can reasonably classed as a business expenses here. You can’t claim for just going to and from the office every day (if you even do that any more!) but any trips to see clients or for meetings are fair game.
TLC clients tend to use ReceiptBank or TripCatcher to make light work of filing expenses and mileage.
Use of home
You can claim for the related expenses occurred when using your home as an office. If you routinely work from home we’ll ask you for some details of your bills and work out a relevant proportion. If you only occasionally work from home we’re more likely to recommend the flat rate of £6/day that HMRC allow.
All of these costs become company expenses which can be deducted off profit, saving you the 19% Corporation Tax on that amount.
Relevant life insurance
This is a form of death in service benefit provided by an insurance policy. You can have a policy for each director of your limited company which will pay out in the event of their death. You can also choose to have it for members of your team too. The policy is paid for by the company, and it’s a legitimate expense which attracts Corporation Tax relief.
This type of insurance isn’t treated as a benefit in kind, so there’s no tax liability for the individuals insured.
(Note: we’re not advising you to take out this insurance, just pointing out that it’s an allowable expense that would reduce your Corporation Tax bill if you had it. Always get proper, regulated advise when buying insurance. We can point you in the right direction if you need a recommendation.)
It’s worth making a mental note of each of these opportunities to reduce your company’s Corporation Tax liabilities. You’ll need to have bought them/paid for them before your year-end for them to count in that tax year – they can’t be backdated.
If you need any more advice about reducing your tax bill, give one of the friendly TLC team a call.
Image credit: Markus Winkler, Unsplash