Small company entrepreneurs have a plethora of options for reducing their taxable income. In reality, the UK already offers over 1,000 distinct types of tax relief. Don’t worry; there are just 32 methods to save money on taxes in your company. Here are a few simple ways limited company owners might lower their dreaded corporation tax payment at the end of the year.
Employing your spouse or partner
If you pay your spouse or business partner a salary for their employment in the company, you may deduct this cost from your taxable income. Even better, if your spouse earns less than the tax-free threshold, they will not be liable for any taxes on the money they get from you. This is a terrific option to keep more money in the family and possibly free up some money for a summer vacation for the kids.
Dividends of up to £2,000 per year are tax-free for UK taxpayers. Family members who are shareholders in the company may receive this amount without paying taxes. This is a simple technique to get money out of a limited business without paying any personal taxes on the profits. This can only be done if your organisation has a suitable share structure.
Gifting shares to family members
Gifting stock might have tax ramifications, but the benefits can outweigh the risks in the long run. Let’s suppose your firm brings in £100,000 each year (we all like round numbers). Because of the higher tax rate in the UK, many of your profits will be subject to your taxation if you are the only shareholder. Dividends may be divided 50/50 if you give half of your stock (or issue new shares to match your own) to an 18-year-old kid, for example. If you earn £50,000 in the UK, you’ll pay no further tax over the basic rate since it’s taxed at the lowest possible rate. Thousands of dollars may be saved in just one year alone for a company owner. However, you must evaluate the long-term consequences of giving up a portion of your firm.
Employing your children
Yes, that’s correct. If your children are at least 13 years old, they can work for you. Working hours are restricted, and you must use them to do tasks for the company. Pay should be at a reasonable commercial rate. If you’re already paying your kids, why not claim the money as a tax deduction?
Contributing to a registered pension scheme
This is a must-have for those who pay taxes at a higher rate. Contributions to a pension plan are not subject to federal income tax. This implies that higher-rate taxpayers may contribute £10,000 into a pension from their firm tax-free if they give up a little over £5,400 in net income (after corporation tax and higher rate profits tax). The corporation may also deduct this expense and get a tax savings of almost £2,000 by doing so.
Personal assets used in the business
As a business owner, you may be eligible for a tax deduction for employing your assets in the company. Do you, for example, do business entirely on your cell phone and laptop? It is possible to assert something in business if it is true (sometimes only a proportion).
Mobile phones
If you hire family members, the company may also cover the cost of their cell phones. Your spouse and children are welcome to join you.
Trivial benefits
A corporation director may get “trivial benefits” of up to £300 per year. These are non-cash payments for anything that isn’t performance-related. Transaction fees must fall below £50. There is no limit on the number of inconsequential perks provided to workers.
