Hints, Tips and Guides

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Some tax planning tips!

We are asked a lot about how to be the most tax efficient you can be. While we all want to pay what we owe over to our lovely friends at HMRC, no one wants to pay more than they have to. 

While there are no magic allowances that suddenly half the tax you pay there are a few things you can do.


Expenses
It is really important that you ensure all relevant expenses for the business are included in your records, whether you are a sole trader or a limited company. This is one of the easier tax savings points…. just make sure all your costs are included. 
So anything that you accidentally pay on a personal card, things you pay for with cash, mileage in your personal car, equipment that you purchase to use in the business, make sure you keep a note of it and tell us about it at the end of the year when we are compiling your accounts. 
Also, if there is training that you want to do that will benefit the business or equipment you want to invest in these can all be deducted from your profit to lower tax. However, watch out for falling into the trap of spending money you do not need to just to save some tax. Always ask yourself when spending money, “could this be a legitimate business expense” and if the answer is yes, pop it on the business card.

Pensions
A great way to plan for your own future and save on some tax, whether you are a sole trader or a limited company, is to put money in a pension. As a regulated area we cannot give you pension advice but we would strongly recommend talking to a financial advisor about pensions if you have money that you can put away. This is particularly beneficial if you are around the £50k profit mark in a limited company as you can make pension contributions to ensure you stay in the 19% tax bracket.

Phones
For Sole traders a portion of your personal mobile phone is allowed as a business expense, so don’t forget to include something. For Limited Companies you can only claim for your mobile if the contract is in the business name, however there is no deduction for personal use. So it is worth looking into whether a business contract may work for you to take advantage of the corporation tax deduction and have the business cover your phone bill.
Trivial benefits
A more fun tax saving is trivial benefits for limited companies. There are some restrictions to these and they cannot be paid as part of remuneration for doing a certain job. These cannot be paid in cash, can only be £50 a time and cannot be more than £300 in total per person per year. So as a director you can buy yourself a £50 Tesco voucher to help with the food shop occasionally and it is deductible in the business and not taxable on you as a person. Make sure to spread these out over the year. They can’t be in one lump. 

Use of home 
If you run your business from your home HMRC allows you to claim for a small amount of use of home costs for the additional costs of running your business. As a basic this is £6 per week, this can be claimed with no calculation. However, you can do a calculation of the costs of working from home, this differs if you are a limited company or a sole trader and can get complicated with what you are allowed to include so let us know if you would like more information about this. 

At 2 sisters accounting we will always stay on the safe side of what can be claimed and how things can be managed as we do not want any of our clients (or ourselves) to end up on the wrong side of HMRC in an audit situation.

While the lowest tax bill possible might seem like the key goal, remember that if you want loans or investments a good profit is key. Also the main ways to lower your tax bill is by spending money, which in the long run might not be best for you if you want that cash for yourself!

Thanks for reading,
Beth and Jessie

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