Jamesons blog

Despite the doom and gloom in the press, the lack of lending and the potential demise of the Euro, many businesses are actually doing quite well. They rationalised when the recession hit and are now reaping the rewards of good management, with more work and higher profits.

The problem they then have is that higher profits attract a bigger tax bill!

Profitable businesses are often pushed towards offshore tax schemes, but this are not low risk strategies and are not very cost effective for the smaller business. The best alternative is to make pension contributions into the business owner’s pension scheme.

For those thinking ‘Equitable Life’, then you can invest in a Self-Invested Pension Plan (SIPP), which would mean you can retain some control over how the money is invested. The downside is that you have to wait until you are of retirement age before you can extract the money from the scheme.

If your business is not yet incorporated, then there are tax savings to be made by incorporating, but that’s another story. 

There are however a number of ways in which profits can be reduced by provision of benefits to employee’s by a company. As a director of a company you can take advantage of these, getting costs that would otherwise be private, paid for by the company. There is a tax charge, but in the following cases it may be worth accepting.

Small low-emission cars

• A company can provide any number of cars available for private use to an employee/director.
• The tax charge on the employee is the same whether there is all private use or partly private/business use.
• The company pays the purchase and running costs (except fuel) and gets tax relief in year of purchase.
• The director has use of a small car (perhaps for teenage children) and only pays a small tax charge out of private funds.

 Vans for personal use

• Any van purchased by the company for private use by an employee attracts a tax charge of £1200 (for higher rate tax payers). That’s the same regardless of how little business use there is.
• The charge is the same regardless of the emissions and so unlike company car rules.
• ‘Van’ includes most twin cab pickups and many van derivatives.
• All private fuel can be paid for by the company at a tax cost of only £200 (for higher rate tax payers).

In addition to the above, make sure you are getting full tax relief for using your home as an office. HM Revenue & Customs now recognise that many businesses are run from home and have clarified the way in which costs can be reclaimed. If your home office is in use much of the time you can claim a percentage of the property running costs.

Before you act on any of the above, talk to your accountant. Or better still, us!

Simon Garner