Here at Farnell Clarke, we have years’ worth of experience and knowledge that would be silly not to share. We’ve put together some top tips for directors that cover all the bases, to help make your work life easier.
Mobile Phones
Putting your mobile phone contract in your company name and allowing the business to pay is Corporation Tax and VAT deductible, even if you make private calls. Benefit is tax exempt but only on one phone contract per employee/ director.
Landlines/Internet
- Put the phone contract in your company name and paid from the business
- Reimbursement of own phone costs are subject to Class 1 NIC & PAYE
- If employee arranges the phone contract and you pay it, then reported on P“D and Class 1 NIC due through payroll
- Pay as you go contracts – business calls should be included on on P11D
- Phones beyond the first made available to employees are treated as assets and reportable on P11D
Childcare
Any children under age of 11 could mean you are eligible for tax free care if in approved provider. £2 for every £8 you pay maybe up for grabs.
Child Benefits
Flex your remuneration from the company but remember if you or your partner earn over £50k then child benefits do need to be repaid. Example being electing to pay bonuses into pension pot.
Staff Entertaining
- Allowance to spend on staff plus partners each year is £150 (VAT inclusive) per head per year. So have your annual Christmas and Summer parties for your team and their better halves ensuring that the total does not exceed £150, and ensure it is open for everyone to join in the fun. Make sure the combined cost of the socials do not go over the full value of the second event that takes expenditure over the threshold will not be allowable and will become a taxable benefit on the staff or you will have to cover the tax cost by doing a PAYE Settlement Allowance! Also, you cannot share the allowance.
- Got a business of only directors (husband and wife??) You can also have this tax break above but as soon as you employ someone then the social must be open to all.
Entertaining Customer or Suppliers
The cost of entertaining clients, suppliers and customers or event hospitality in relation to the business is not treated as an allowable business expense (for corporation tax, VAT is more complex).
Gifts
No benefit in kind will arise for gifts to your employees but they are tax deductible, VAT can be claimed on:
• It cost you £50 or less to provide
• It isn’t cash or a cash voucher
• It isn’t a reward for their work or performance
• It isn’t in the terms of their contract
Available to all employees:
Examples, chocolates, flowers on your wedding anniversary!
Get your gifts branded and note that gifts outside of your company are not tax deductible if:
• Over £50
• Food/drink
• Tobacco
• Exchangeable vouchers
Subsistence/Travel
This is one of the trickiest areas to get right! So, hotel and food/drink/parking/toll costs from your trips away from your workplace and outside of working routine are tax deductible – just don’t be buying lobster and cava – so make it reasonable! This is of course, wholly & exclusively dependant on the expenses you need to incur to do your job.
Travel to work
Whilst there is usually no tax relief for ordinary commuting – home to work – there are a number of exceptions. The term ‘ordinary commuting’ is defined to mean travel between a permanent workplace and home, or any other place that is not a workplace. Case law has established the principle that travelling between your home and a permanent workplace is not a travel expense related to the performance of your duties. The rules are different for temporary workplaces where the expense is allowable. A workplace is defined as a temporary workplace if an employee only goes there to perform a task of limited duration or for a temporary purpose – normally 2 or less days a week aka 40% of their time.
Other home to work travel that may be allowed includes:
• Where the employee has a travelling appointment
• Where the employee’s home is a place of work and the place where the employee lives is dictated by the requirements of the job
• Where the duties of the employment are carried out wholly or partly outside the UK
• Where a non-domiciled employee is working in the UK
• Emergency callouts
There are also specific exemptions from tax for works bus services and subsidies paid to public bus services as well as for the provision by an employer of bicycles and cycling equipment in order to encourage environmentally friendly transport between home and work. Note the 2-year rule for contracts. If you know the contract is going to last longer than 2 years you cannot claim the mileage. If it is expected to be less and then goes over this is still ok up to the point you know the contract is extended.
Holiday
- You go on holiday and is for personal reasons that you go – this is not allowable through the company. If you go on a business trip and extend the trip for personal days – you can still claim the business part. Just keep log of for those additional days and their costs to exclude from the claim.
- You can pay for a holiday for family (Spouse & children under 18) to visit an employee who has been abroad for at least 60 work days. This may however be a taxable benefit for the employee and is capped at two trips per annum – ITEPA s371
- Employees assigned to the UK can also qualify for this deduction for visits to the UK – ITEPA s370.
Mileage
Do you use your personally owned car for business travel? – Directors can be reimbursed 45p per mile up to 10,000 miles in the tax year, and 25p thereafter when using their own vehicle on qualifying business travel. If you take passengers at the same time, you can also claim an additional 5p per employee too.
Use an app like MileIQ or Tripcatcher to log miles – the latter works out the VAT you can reclaim if you are VAT registered. Remember not to put the personal motoring costs through the company if you use the qualifying mileage payments method, and also consider the VAT fuel scale charge if you are VAT registered.
- Vans – as cares
- Motorbike – 24p per mile
- Bicycle – 20p per mile
Company Cars
- Generally, not as attractive these days as the % applied is based on Co2 emissions for tax purposes.
- Note that benefit in kind will arise on the vehicle but also fuel if paid by the company. In a more personal situation, it can be as low as 2% of the list price taxed at your marginal rate. (20/40/45%). No subject to EE NIC.
- Electric and Hybrid cars qualify for FYA if new so 100% of cost can be claimed against corporation tax. Benefit value subject to Class 1A NIC.
- Best to ask us the tax effect of a certain car you fancy – we can then work out the tax result of putting in the company versus buying personally. Also, we will advise what capital allowances you in year of purchase. Note the way you finance the purchase of a car will result in different treatment of VAT – it will depend/can be more complex.
Company Vans
This will also result in a benefit in kind if private use is significant, but it is a standard amount.
Company Fuel
Any fuel supplied by the company for a company vehicle used for private use would be subject to a fuel benefit in kind based on the Co2 emission. Van benefits and Car benefit increase every year, so this is normally pretty tax inefficient for most company directors or employees!! However, if you keep detailed mileage logs, it is possible to reimburse the company for the private fuel element and avoid the charge, or if you pay for the fuel personally you can claim business reimbursement of the business mileage at the HMRC tax free rates.
Company Pension Contributions
Company pensions are a great way to extract funds from the company to get further corporation tax savings!
- ER contributions give corporation tax relief but count to £40k allowance.
- Allowance is also tapered if earnings are above £240k.
- It is advised to take advice first if you are member of a DB scheme
Professional Indemnity insurance
Is tax deductible for the company.
Keyman insurance
Would your business struggle if certain directors or employees become sick, or off work long term?Keyman insurance is corporation tax deductible. Any resulting claim/pay-out is taxable as income to the company, but still tax efficient each year you pay premiums.
Medical/Health Insurance
Policy must be in the company name to receive a corporation tax deduction and would result in a benefit in kind charge based on the cost of the policy to the director/employee. But offering health insurance to your team is a great perk that means they can be back at work before you know it! Class 1A NIC would be due, and this tax would itself qualify for corporation tax relief.
Keep it in the Family
Are the skills you need sat at home playing Xbox or away at university with lots of free time during holidays? Invite your family members to carry out tasks within the business and pay them a reasonable wage. Admin, social media etc.
Clothing
Only allowable for a tax deduction if it is protective clothing or branded in the company /business name.
Charity Donations
Want to give back? There are special rules in place when a limited company gives to a charity. This can include Corporation Tax relief for qualifying donations made to registered charities or community amateur sports clubs (CASC), as well as Capital Allowances for giving away equipment that has been used by a company. If giving away trading stock, will still need to account for VAT. Potentially 0% VAT will apply. However, the rules are different if the company is given something in return for donating, such as tickets for an event.
Donation amount Maximum value of benefit that is acceptable
- Up to £100 25% of the donation
- £101 – £1,000 £25
- £1,001 and over 5% of the donation (up to a maximum of £2,500)
Just remember Charity sponsorship payments are different from donations because the company gets something related to the business in return. A company can deduct sponsorship payments from its business profits before it pays tax by treating them as business expenses.
Payments qualify as business expenses if the charity:
• Publicly supports the company’s goods or services
• Has links from their website to the company’s
• Permits them to sell their goods or services at the charity’s events or premises
• Allows the company to use their logo in company’s printed material
Eyesight test and glasses
If you work with visual display equipment, then the cost of eye tests can be put through the business. You can only claim the glasses/lenses if your prescription is for whilst you are at work using specialist equipment, so general daily use glasses are not allowed as tax deduction.
Use of home
HMRC generously (!) allow each director £6 per week for employees/directors that are working from home.
There is an apportion method but, in most cases, this is not beneficial – you can work out the number of rooms (excluding bathrooms/hallways), number of hours you work in a room and apply to the cost of light and heat, but not mortgage interest or council tax. If you use this apportionment method, be aware of the Capital Gains tax implications when you eventually sell your property and take some advice before using it.
Director Loan Accounts
S455 tax is charged on overdrawn DLAs so HMRC can make sure directors aren’t taking money tax free. It is charged at 33.75% and this tax is repayable when they repay the overdrawing (or partially repayable if they partially repay the overdrawing). When they repay, they must not be overdrawn for the following 30 days or HMRC deem it not to be repaid.
Interest on the DLA –when overdrawn then charge interest at the HMRC beneficial loans interest rate.
There are two methods, it is optional which you use but HMRC will use the daily method if average balance distorts the figures aka loan repaid day 1 and borrowed again day 364.
If you have any further questions regarding tax, please feel free to get in contact with us at any time here.