Be tax efficient

Track expenses

The number on thing you can do to be tax efficient is tracking your expenses... Make sure that they are not lost, forgotten, and you hence that you claim all that can be claimed.

Use your allowances

There are a number of allowances that will apply to your business. For the majority of allowances, these will be claimed as part of your year end, and your accountant will go through each of the allowances that might apply to your business.
For example, at Ecommerce Accountants, at each year end we issue you a checklist of tasks, which includes systematically going through the list of allowances that might be applicable and checking if they can be claimed for your business.
However, some allowances are claimed during the year, and you should be aware of them. The key ones are detailed below.

Phone allowance

A Limited Company is able to provide one phone contract and handset to each of its employees. There are some specific requirements, such as the contract must be in the business' name and paid for by the business. But if you have been eyeing up the latest iPhone or Android, this could be a tax-efficient way to go about getting it.
Dividend allowance
Each personal tax year, UK tax residents have a £2k dividend allowance. As long as your business has this amount in retained earnings, this is well worth using as you can pay this tax free.

Personal income tax allowance

Each personal tax year, UK tax residents have a £12.5k income tax allowance. If during the tax year, you have not taken/received earnings up to this amount, it will then likely be beneficial to pay this amount in salary / dividends to yourself.

Pension allowance

Each tax year we receive a generous pension allowance of £40k. Any contributions made to your pension attracts income tax relief. Pension contributions paid by your company are allowable expenses that reduce your corporation tax bill. This is a great way to reduce your tax bill, and save for your future income, noting of course that (based on current pension rules) you will not be able to touch this money until you turn 55.

Pay yourself tax efficiently

If you are a Limited Company you have control over how much to pay yourself as well as whether to pay yourself salary or dividends. The most optimal mix and amounts to pay yourself depend on your other income and tax residency status, as well as what your company can afford to pay / how much you want to retain to fuel growth.
In c. 90% of cases, the most common answer, for reasons we can go into with your accountant, will be to pay a salary of £8,788 per year and the remainder in dividends, up to the top of the basic rate band of £50k (if you need to top up your income beyond £50k during the tax year, you will typically pay dividends; just understand that beyond this point your marginal tax rate is substantially higher).
Last modified 1yr ago