A limited company structure is usually the best way to legitimately and compliantly minimise your tax bill. This is because you can take remuneration through an efficient mix of salary and dividends and claim a wide range of legitimate business expenses.
Here are some top tips that could help you save tax either through your company or personally through your self-assessment.
13 tax-saving tips for limited companies
- As a UK taxpayer, you can receive £2,000 of dividends tax-free
per year on top of your personal allowance. Therefore it’s always best to take this irrespective of your salary.
- It’s always best to ensure your individual contract you have with your end client or agency is outside of IR35. Your dedicated accountant will be able to advise you on this.
- Taking advantage of the Flat Rate VAT scheme in your first year of business can increase your income. This is because you would collect 20% of VAT on top of your daily rate, but only pay 15.5% to HMRC.
- Sharing part of the ownership of your company with a spouse can reduce the tax you pay personally and potentially keeping you out of the higher rate tax-bracket altogether. It is recommended that your spouse has an active role in the business, ideally as a fee-earner.
- You may also be able to utilise the marriage allowance by transferring an underutilised allowance to or from your spouse. This can reduce your tax burden by up to £238.
- A number of expenses can be claimed through your company if they are wholly and exclusively for business purposes. These include:
- business travel (mileage and train fairs).
- Subsistence professional subscriptions or training.
- Accounting fees.
- Protective clothing.
- Mobile telephone costs.
- Private medical insurance.
- IT equipment, internet, and software, costs of advertising your services.
- Stationery and consumables.
- Trivial benefits.
- Work clothing and more!
- In addition, certain allowances for things such as working from your home can be claimed. This can be a set amount or a share of the household bills.
- With the ever-increasing benefit-in-kind charges on company cars, it is normally more tax effective to purchase a car personally and claim the business-related mileage back at the rate specified by HMRC. This is currently 45 pence per mile for the first 10,000 miles then 25p thereafter.
- Investing in a pension is one of the most tax-efficient decisions you can make and will reduce both your company and personal tax bill.
- Furthermore, a pension can be used to do all sorts of things, such as buying property on which it can then receive tax-free rent – a qualifying pension scheme can borrow up to 50% of its value to help fund such investments. A pensions adviser will assist with this from the company and personal positions allowing your accountant to advise from a tax perspective.
- The marginal rate of tax on income above £100,000 is significant, due to the fact that you gradually lose your personal allowance between £100k and £150k. So, if you don’t need all of the money you earn through your company to live on, leave it in the company account – it will incur substantially less tax that way. It can be used to provide for periods between assignments and will attract less tax if/when you decide to close the company down.
- Look at investing the first slice of any surplus funds in a tax-free ISA – up to £11,500 can be invested tax-free each year (before the end of March) and your money is instantly available.
- Surplus funds in your company account can be invested in higher-interest bank accounts or bonds which will receive higher interest rates and earn the company more money.
Not every financial circumstance is the same!
At Clever Accounts, we always try to give you the best possible advice, helping you be more tax-efficient through your limited company. As ever, it’s always best to speak with us for any tax-saving tips as every circumstance is different.