How to maximise your tax efficiency this year?
2020 “welcomed” UK businesses with quite a few challenges. COVID-19 has met business owners with serious questions in regards to staff’s well being and business continuity. No doubt that some of the “headaches” for company directors stem from managing the business’s cash flow, take-home pay and staying on top of tax deadlines and payments. However, there are more than a few tax benefits you should be aware of as they could help reduce your next tax bill.
To help you get started today, here’s a quick review of some of the benefits available for you and your business.
Tax-free & lower rate dividends
The total tax-free amount you can withdraw, not including other sources of income is £14,500 per financial tax year. You can take a further £35,500 of dividends, at the 7.5% dividend tax rate and before the higher rate of 32.5% is charged.
Click here for the latest dividends tax rate guide.
Claim back your expenses
A number of expenses can be claimed through your company if they are wholly and exclusively for business purposes.
Some of these expenses include:
- Business travel and subsistence.
- Accounting fees.
- Professional subscriptions.
- Protective clothing.
- Telephone and IT costs.
- Advertising costs.
- Pension and more
Click here to learn more about what can be claimed.
100% tax allowance for ULEV vehicles
The benefit in kind rates for all-electric cars has reduced from 16% to 0%, which will result in significant tax and National Insurance contribution (NIC) savings.In the first year of purchase, ULEVs (Ultra Low Emission Vehicles) are eligible for a 100% allowance providing that they are purchased brand new.
Click here for our Ultra Low Emission Vehicles tax guide.
HMRC also offers businesses affected by COVID-19 a longer time period arrangement to pay their corporation tax bill. You will have to explain why you are affected and agree a deferred payment plan, based on what you now expect to be able to afford.
Tax benefits for married couples
Sharing company ownership
Sharing part of the ownership of your company with a spouse could 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.
Marriage allowance tax reduction
You can utilise the marriage allowance by transferring any under-utilised allowance between yourselves. This can reduce your tax burden by up to £250 per year (Up to 10% of the personal allowance at 20%).
Married couples benefits aren’t available to higher rate taxpayers.
Your pension can reduce your tax bill
Investing in a pension is one of the most tax-efficient decisions you can make to reduce your company tax payment for the long term. By allocating additional funds towards your pension scheme, you may be decreasing the amount of immediate dividends available for you, but eventually, you would increase your overall take-home pay from dividends and pension combined.
Work at home tax relief
From April 2020, the standard HMRC approved rate of £4 per week has been increased to £6 per week, or £312 per year.
Take advantage of Flat Rate VAT
For some freelancers and contractors, taking advantage of the flat rate VAT scheme can increase their first year income.
Under this scheme you would collect 20% of VAT on top of your daily rate but only pay 15.5% of what you receive, to HMRC.
Click here for our complete Flat Rate VAT guide.
Investing in individual saving accounts (ISA)
Look at investing the first slice of any surplus funds in a tax-free ISA. This tax year (2020/21), the maximum you can save in ISAs is £20,000 tax-free. Additionally, your money would be instantly available.
Ask for additional support from HMRC
The ‘time to pay’ scheme
With the ‘time to pay’ scheme, you can receive support from HMRC to meet outstanding tax liabilities. Arrangements are agreed on a case by case basis and are tailored to individual circumstances and liabilities.
HMRC also offers businesses affected by COVID-19 a longer time period arrangement to pay their corporation tax bill. You will have to explain why you are affected and agree on a deferred payment plan, based on what you now expect to be able to afford.
Not every 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 company. As ever, it’s always best to speak with us for any tax-saving tips as every circumstance is different.