10th September 2020
The chances are that you are already aware of the benefits of contracting via a limited company, so in this article, we are focusing on tax savings in a bit more detail. We listed 15 helpful tips, most of which will be applicable to you, some of them will be best discussed with your accountant.
1. Tax savings on your income from the company
As opposed to being permanently employed, as a director of your own limited company, you are in a greater degree of control of your income and the way you extract it from your company. This allows you to decide upon the split of salary and dividends, to take advantage of the more beneficial tax rate that applies. Find out more on the subject here.
2. Flexible pension contributions & tax savings
Worried about the future, and pension contributions? You may not have known that your company can pay into a pension fund for you and save on corporation tax at the same time? We recommend talking to a financial advisor about your options.
3. Expenses & VAT
Have a lot of expenses? Your limited company can pay for all your business expenses and in doing so these help to reduce the corporation tax it will be owed for the year. If you are VAT registered and buy equipment or services, you can recover the VAT to help lower the company’s VAT bill. For more information on VAT visit this guide.
4. Working from home?
As a contractor, you are likely to work from home from time to time. If this is the case, you are entitled to claim up to £6 per week, no questions asked by HMRC. It is possible to claim more if you have a dedicated office in your home, find out how from this guide.
5. Annual company event
Your company can claim up to £150 annually per employee for a company event or office party, so you don’t have to miss out on a Christmas party each year. Our guide here explains what to do to claim.
6. Mobile phone costs
Using your mobile for work? Make sure the contract is in the company name and then you can claim 100% of the bill. For other allowable expenses visit our detailed expenses guide.
7. The Employment Allowance
As a small business, your company can claim an allowance, which can save up to £4,000 in Employer’s National Insurance contributions in the tax year. Check with your accountant if your company is eligible.
8. The Annual Investment Allowance
Planning to upgrade your computer equipment? As long as the asset is for business use and the invoice is made out to the company name, the full cost of the purchase can be offset against the company profits reducing the corporation tax for the company in the year of purchase. If you are planning to purchase equipment read our detailed guidance or contact your accountant.
9. Enjoy full employment benefits
As an employee of your limited company, you are entitled to the same employment benefits as anyone else such as maternity or paternity pay. Your company can even pay for childcare (via the old childcare voucher scheme) and yes, you still have holiday entitlement. It doesn’t mean you have to work 24/7 just because you are running your own company.
10. Trivial benefits
The company can provide tax-free benefit to its employees if it costs less than £50, it isn’t cash or a cash voucher or a reward and it isn’t in the terms of their contract. This is known as a ‘trivial benefit’.
11. Incidental overnight expenses
Employees are allowed to claim up to £5 (UK) and £10 (abroad) for incidental overnight expenses when travelling. These are to cover the cost of laundry, newspapers or the cost of calling home.
12. Benefits of the VAT Flat Rate Scheme
If you are registering for VAT you may benefit from joining the Flat Rate Scheme. It was designed to simplify the VAT process by paying over a flat rate of 16.5% of turnover as VAT. First-time joiners enjoy a 1% reduction on this rate and get to retain a bit more of their sales income. For more information on VAT and the Flat Rate Scheme visit this guide.
13. Entrepreneur’s relief
Should you decide to close down your company, make sure, you check if you are eligible for Entrepreneur’s Relief. Company directors who qualify pay only 10% Capital Gains Tax on all gains on qualifying assets. Your accountant will claim this for you if you are eligible.
14. Training and development (claimable)
Dream of expanding your knowledge and your horizon with it? Most of the related costs, such as tuition fees are tax-deductible expenses, provided the training is job-related. See what you can claim in detail here.
15. Have the right accountant by your side
Choosing the right accountant is one of the most important decisions you can make to make the most of operating a limited company. They will not only take the administrative burden and stress off your shoulders but advise you on how you can save money. The price often reflects on the service you get, so make sure you do your research before committing with one.
We hope that the few points above have helped to provide information on the benefits of running a limited company. If you have questions, please give us a call and we will be happy to advise you based on your individual circumstances. Please feel free to call us on 0800 917 9100 or send us an e-mail to email@example.com.