Top 3 tips from Limited company accountants
Making a good profit is one of the biggest motivators for any business owner. Yes, there are various reasons for why people start their own businesses. Money isn’t the only factor, but it is an important factor nonetheless. So imagine this – you have set everything up and it’s going great. You are driving in more and more sales as the days go by, and the earnings graph is through the roof. Now the next and very important thing that you need to consider is income tax. Taxes are an inevitable part of learning. We all have to pay them. It is common knowledge that there is a slab on the amount of tax you pay depending on how much you earn in a year, apart from other factors like the nature of your business/profession, your gender, age, etc. Nobody is ever taxed more than what they are supposed to pay as per the prevailing rules.
What if someone told you that there are ways in which you can legitimately minimise the amount of tax that your business pays by investing or diverting it elsewhere? That would mean less tax paid and more money used to push your business forward. So here are the top 3 tips from small and limited company accountants on saving income tax. Salaries to Director and Family Members Director’s salary is one of the most common tax saving methods employed by businesses.
It is common knowledge that the director takes a certain portion of the profits at an agreed ratio. Showing this amount as salary, even up to the exempt amount, can help save tax on the same. The same goes for salaries to family members. Most businesses start off with the family members helping out or joining in at key positions. The profits that are paid to them should be shown as their salary for gaining tax benefits on the same. Vehicle Usage Using a company vehicle for private purposes attracts tax under Class 1A National Insurance, which will have to be paid for by the user of the car. On the contrary, using a private car for official purposes helps in getting a tax exemption and furthermore, allows the user to claim certain benefits depending on the extent of the car’s use.
Capital Assets and Capital Allowances on capitalising assets and depreciating them over their useful life offers some tax exemptions on the same. Assets are capitalised instead of being recorded as expenses because they offer some benefit to the company over a period of time. Recording items such as electronics, machinery, furniture, etc. as fixed assets and depreciating their value at a fixed rate every year gives the company long-term tax benefits. There are many ways for you to legitimately reduce the amount of tax that you pay on your business income. It is always a good idea to consult your own accountants or any accounting firm to understand the smaller details so that you can take better decisions. Your accountants will be the best person to advise you on to pay your taxes.
GM professional accountants are local accountants based in London, Manchester and Essex.
How Brexit is affecting businesses
On June 29, 2016, the United Kingdom (UK) voted to leave the European Union (EU). Since then David Cameron resigned as Prime Minister and Theresa May has replaced him. The value of the pound has “dropped twelve percent”, however the “FTSE 100 Index has gone up 17 percent”. (The New York Times). On March 29, 2017, Theresa May invoked Article 50 to start the process of the UK leaving the EU. Since invoking Article 50 the UK will have two years to reach an agreement with the EU on how both parties want to handle trade and the movement of people between countries in the EU and the UK. If no agreement is reached in two years then trade rules set by the World Trade Organization will go into effect which would allow for the UK to impose greater or possible unequal tariffs. This would mean the price of goods and labor that are imported and those that the UK exports would increase.
One of the reasons that UK citizens voted for Brexit was because they want to see a decrease in immigration. Since the EU allows easy passage between member countries, some fear that it is too easy to enter a country and cause harm. Once one gains citizenship in a country one can easily move between countries without many obstacles, however different countries have different requirements and security checks for becoming a citizen. Easy passage between countries can be beneficial to countries as well; many citizens of EU countries come to work in the UK. These people work in a number of different jobs from farming to finance across the UK. With the UK leaving the EU, many are unsure what will happen to these workers and some have already started to leave the UK. “Official figures reveal that the number of EU-born workers in the UK fell by 50,000 between October and December to 2.3 million” (Kollewe). With people leaving, businesses will have to find a way to make up for this lack of labor. Some businesses have started to move jobs to EU member countries while another option would be for businesses to raise labor rates for jobs that UK citizens have not been willing to do for lower rates.
Increased labor rates is not the only effect of the UK leaving the EU. Depending on the outcome of the upcoming negotiations a multitude of things could happen. Since the UK is the first to exercise article 50, no one knows how this will affect other member countries. If the UK gets a favorable deal other countries may also consider leaving to see if they can get the benefits of the EU without paying into the system. However, if the UK gets a bad deal it could discourage countries from leaving in the future. Another possible effect would be Scotland leaving the UK to join the EU. Since the majority of the Scottish population voted to stay in the EU, some have considered leaving the UK and joining the EU to stay in the single market system. This separation would further decrease the UK’s workforce and hurt their economy.
Written By Gm professional accountants, Local Accountants based in london