Did you know that there are a whole host of tax benefits currently available for UK entrepreneurs? If you’re just starting out on a new business venture it’s highly advisable to research tax tips for UK entrepreneurs to not only ensure you are following best practice when it comes to your financial accounts, but you are also making the most of any tax benefits available.
7 tax tips for UK Entrepreneurs in 2016
- Working from home?
If you are a UK entrepreneur the chances are that you will be running your business from home. Did you know that you can claim tax relief on a proportion of your home expenses such as heating, lighting, council tax, home insurance and mortgage interest? You need to be realistic about the claim and you should also make sure you don’t use any room exclusively for business, as this could cause capital gains tax problems if you sell the property. You start by apportioning the expenses over the number of rooms in the property to get the amount relating to the room you use mainly as an office. Then you need to look at the amount of time you spend using the room for business purposes as against private use and scale down the amount accordingly. You can also claim for business use of telephone and broadband.
- Company transport? It pays to pick up
Many people find twin cab pick-up trucks almost as desirable as SUVs. If you are one of those people it would be worth getting your company to buy one of these for your company vehicle. Provided the vehicle payload is more than 1,000 kg. it is treated as a van for tax purposes and you get the use of it at a much lower tax cost than a “normal” SUV. You can also write off the full cost of the vehicle against company tax, whereas you would only be able to write off 8% of the cost of a car each year. On a £20,000 vehicle this means the company benefits from a tax saving of about £3,500 and the director saves about £1,500 (assuming personal tax at 40%). If the company pays for all fuel for both private and business use, the further tax saving can be up to an astonishing £8,500.
- Kids on wheels
If you have a teenager who has just learned to drive, you will know that car insurance can be very expensive. Why not get the company to buy a very low emission car (75 g/km or less) and let them use it. The company will be able to write off the full cost of the car against tax as well as all the running costs except fuel. You will have to pick up the tax cost of the car benefit but, even if you pay tax at 40%, on a car costing (say) £12,000 this would only cost you about £500 a year.
- 5th April … put it in your diary
From the 5th April, the government is making big changes to the dividend route for businesses. As a UK entrepreneur, if you’re already in business it’s recommended to bring forward your dividend payment to save on tax and take less in the next financial year. If you decide to bring forward your dividend payment before the new financial year just double check that this doesn’t take you into the income tax bracket of over £100,000 as this could impact the level of tax taken against your income. This is not a ‘one size fits all’ so you need to take advice on this.
- Saving for your family
As a UK entrepreneur success can also come down to how financially savvy you are with your money outside of your business investment too. Bedding down for the long term with a plan for financial security will give you that reassurance that your family life is taken care of whilst you are building your business. Have teenagers? Set them up with a First Time Buyer ISA to help them prepare to get onto the property ladder. With a Help to Buy ISA the government will top up any savings you add to this account by 25% (tax-free) up to a maximum of £3,000.
- Saving for the future
As a UK Entrepreneur it’s also worth noting that as soon as you start to employ people within your company you will be legally obliged to provide employee contribution pensions otherwise referred to as ‘auto-enrolment’ by 2018. Failure to do so could lead to fines of up to £2,500 daily depending on how many members of staff you employ.
A business owner can put up to £40,000 per year into a pension tax free via an employer based pension. If you decide to take the alternative route and save personally the government would charge National Insurance and Employer National Insurance. A business receives tax relief on pension payments and also avoids National Insurance – so consider contributing via the business rather than personally if you can.
- Digital Tax Returns
On a final note, it’s worth having on your radar government plans to introduce digital tax accounts. The move will allow UK Entrepreneurs who have started to generate revenue from their business to manage their tax returns in real-time and submit accounts throughout the year rather than in one go. In addition, by 2020 your business should be able to link in your accounting software and bank accounts directly to your digital tax account. The benefit? If your account information is submitted regularly your tax bills will be more closely related to your overall performance.
If you’re a UK entrepreneur and are looking for financial advice from approachable specialists please get in touch, the HB Accountants team would love to see how we can help build your future business.
As responsible professionals, we always advise seeking professional advice on your unique circumstances before proceeding with any of the points raised in this article.
