Top 10 Tax Tips for Limited Companies

Is your company VAT Registered?

Being VAT registered does have some benefits that your company can utilise such as being a useful way of saving tax. It is often mistaken that VAT is only for big business however small companies can still take advantage of being VAT Registered.

-          Being VAT registered allows you to claim back any VAT paid on expenses which therefore increases profits overall

-          It also means that when working out the costing of your service the client can claim back the VAT if they are also registered

Depending on the nature of your business you can also sign up to the VAT Flat Rate Scheme, this would be of use to you if your business isn’t pushing out a significant outlay on expenses or if your expenses aren’t likely to incur VAT in the first place. This will mean that you will pay a lower rate to HMRC in your VAT return as the amount you pay becomes more dependent on the services your business undertakes.

If your business turns over £85,000 over a year you must apply to HMRC to be VAT Registered to avoid incurring a fine.

Paying Dividends

Another top tip of saving tax in a limited company is to make use of the dividend program. By making use of the dividend program it means that you can reduce the amount you pay in National Insurance Contributions.

By taking dividends it allows you to:

-          Pay yourself a lower value salary where you can eliminate National Insurance Contributions and PAYE requirements

-          Reduce the amount of tax payments in comparison to being a sole trader

It is also very important to note that your Confirmation Statement is submitted as soon as possible and avoiding late submissions and penalties.

Executive Pension Scheme

Being enrolled onto an Executive Pensions Scheme is also beneficial because it makes it easier to accumulate significant tax savings. If you invest your pre tax income into your pension you will be saving more tax than you would if you invest your income post tax into a personal pension.

Providing life assurance

It may be of interest to your company to set up a life assurance policy, this has become a large part of reward systems in the workplace. Within this policy any pay-outs or premiums wouldn’t be seen as taxable benefit for you in a personal matter. Therefore this policy helps to reduce taxation as the company would then pay a regular tax premium for a relevant life plan.

Bringing in family members

A top tip to combat any tax issues is to employ family such as your partner or children, this would be applicable under the following conditions:

-          They are capable of the role that they are given and it is suitable to them

-          They undertake suitable tasks to their role and must be paid a legitimate salary for the work they carry out

-          Ensure that this is ethical and an affordable business expense that could reduce your company tax bill

If your child is under 21 then as an employer you wouldn’t have to pay National Insurance charges. Therefore, if your child is skilled in IT for example they could help with a website design or basic admin.

Ensure you are claiming expenses properly

Claiming back expenses is an important factor to save tax, this can be utilised by the company without going into ethical grey areas. You can only claim items that have been genuinely purchased for business purposes, it is important to be careful when knowing which expenses to claim back such as expenses when working from home should be taken into careful consideration.

Salary options

An important factor of being a company director is that there are many different salary options that you could choose. Depending on your personal tax allowance you could take a salary based on this and then further reduce all employee and employer national insurance with employer allowance.  You could also save tax by setting your salary within the secondary earnings threshold.

Tax free benefits that your business is entitled to

You may not be aware but you have access to tax free benefits such as

-          Having your company pay your phone costs as long as its provided for you by the business and reneges all costs on your behalf

-          Utilise working from home benefits such as taking around £4 per week which comes to over £200 per year

-          If you have children you can take advantage of company childcare contributions such as £55 per week which goes towards childcare costs

If these benefits are used its important to note that the costs will need to come directly from the business bank account otherwise they would incur personal tax benefit.

Gifting shares

If you have a partner who isn’t already paying a high tax rate it would be beneficial to gift them shares of your company. This is only suitable if you are married to your partner otherwise you may incur tax for the shares.

For more information get in touch with Cheylesmore Chartered Accountants