By Anita Brook, Managing Director Of Accounts Assist
With HMRC announcing changes in the way it deals with investigations into tax fraud, and recent news stating that there will be a ‘substantially increased number of prosecutions over the next four years’ and professionals reportedly being subjected to lie-detector tests to beat tax cheats, Anita Brook, managing director of Accounts Assist, highlights the top, and legal, ways you can lower your tax bills.
1) Expenses: Not all business expenses are tax deductible, but many are, so it’s important to make sure you claim as much as you can. In the most part, anything that isn’t a capital asset can be deducted from your taxable profits. This means you can get immediate tax relief.
You can get tax relief on items such as desks, computers, chairs, and on costs from stationary and communications to advertising and business entertainment costs, and rent for business premises.
If your office is based at home, you can claim a proportion of costs, for example; your water rates, insurance, heating and lighting costs. The proportion should be based on the floor area or number of rooms used for business, and the proportion of the time it is used for business, if it is not for exclusive use.
Your business can also claim tax relief on salaries and benefits. This could include the cost of training employees and the cost of employee childcare provision as well as wages and redundancy payments.
2) Company Car: If you are self-employed and need to travel around for your business, you could either buy or rent the car through the business. You can get a car allowance, and whilst this is taxable, it can be offset again the actual costs of running your own car.
With regards to business mileage, make sure you claim! If you are using your own car, you can earn up to 45p for the first 10,000 business miles in the tax year and 40p for each additional business mile in the tax year. If you do clock up lots of business miles, then you could offset the initial cost of the car.
3) Do you travel around: Don't forget to claim expenses for everything from bus or train tickets, hotel accommodation, meals, congestion charges or parking fees. Keep your receipts and make sure you claim the tax back.
4) Get a cash flow boost: Careful financial planning when setting up your business can certainly help you to improve your cash flow. Look at selecting a Year End date to suit you and the cash flow cycle of the business. When choosing the date, make sure you make the most of any allowances and reliefs available and make sure it is appropriate to your cash inflow.
Most companies will need to pay their Corporation Tax, nine months and one day after the end of their accounting year. Try calculating your Year End date when you know your cash flow will be good.
5) Best way to pay yourself: If you have set up a limited company, instead of taking a salary, why not take a director’s dividends for up to £30,000. You will only pay 10% tax and will not pay any national insurance contributions. You could also use this to pay individuals and other shareholders.
6) Annual Losses: If you are self employed and if you have unfortunately made a loss from one year's trading, it is possible to carry forward the loss, and offset it against profits from the next. Thus, keeping more cash available.
7) Payments on account: This only has to be paid by people who have completed a Self Assessment tax return. If you are self employed and you have or are expected to earn less in 2011/12 than you did in the year before, ask HMRC to review your payment on account.
8) Thinking of hiring Accountants or Solicitors: If you are hiring professional services for a business purpose, e.g. a lawyer or accountant, then you can ask for tax relief for the cost of fees and subscriptions.
9) Are you buying specialist equipment: If you are running a specialist business and need specific tools or clothing for your work e.g. a uniform then you may be able to claim tax back.
10) Claim for depreciation: If you are self-employed, you may have items which depreciate in value each year. If you buy capital items such as computers and printers, you will be able to claim tax relief over the life of your asset. As all items are different – it is worth discussing individual cases with your accountant.
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