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Saving Tax

In this section:

Deductions

Self Employed becoming a trading company

Accounts

Putting property into a company

UK Inheritance Tax - Sheltering UK property & Investments

BENEFIT IN KIND - TAXABLE AND EXEMPT BENEFITS

 

You need to keep an eye open for available allowances and deductions and consideration should be given to how you structure your affairs.  This does involve a certain level of proactiveness, even if you have an agent acting for you.  Your agent cannot act unless he knows of your anticipated changes.

DEDUCTIONS

You are entitled to claim certain deductions when you submit your tax return. These amounts will be used to reduce your tax liability.

Some examples of current allowable deductions are:

Any amount claimed, once verified, will reduce the amount of tax you need to pay. For example, if you have a total annual income of £15,000 a year and you pay £2,000 a year in mortgage interest, your income would be reduced to £13,000 for income tax purposes.

 If you claim mortgage or loan relief then your lender will send you a certificate of interest paid for the year- this should then be submitted with your Income Tax return form. The guidance notes contained within your annual tax return clearly state what documents may be required when claiming any deductions, so this should always be used as a reference.

It is important to remember that certain deductions are subject to limits and restrictions, and any relief granted must be within these set parameters and conditions. For example, with effect from 6 April 2010, mortgage and loan interest relief will be capped at £10,000 in total per individual.

Self Employed becoming a trading company

Considerable savings can be achieved by restructuring your business in a company.  This is really viable if your net profit is £25K+.  You will not notice any real change in how the business is run.  There are significant tax savings available as well as other important advantages.  In addition liability is limited protecting your personal assets and being a Limited company provides a greater degree of credibility.  From 6 April 2009 the level of investment income allowed is up to 50% of turnover. 

 

Trading Accounts and expenses

It is important that you correctly record all of your expenses and carry a petty cash book for detailing small cash transactions.  The tax office have a mission to add back over claimed expenses as well as checking ratios and disclosure. A simple profit and loss account can be prepared for a small business which the tax office will accept. Statutory accounts are required for a company.

Revenue expenses

You are entitled to claim all expenses wholly and exclusively incurred in running your business.

eg insurance, rental, phone, vehicle (fuel, insurance, servicing), staff wages,

Vehicle Where you use a vehicle, unless it is used entirely in the business you will need to record your business mileage. The vehicle expenses claimed (petrol, servicing, insurance) are then allocated in the proportion business/total mileage.  This ratio also applies to capital allowances

The same approach is used in respect of calculating the capital allowance available on the vehicle.  A reducing balance basis is used

Home as office: If you have set aside a room for use alone as an office then you are entitled to claim a proportion of your household expenses (rates. insurance, heating)

Phone and internet  You should make adjustment and deduct any personal use from the expense claimed.

Capital allowances

Items of equipment are claimed separately as a capital allowance which is deducted off the net profit. 

 

Protect your Property in a Company and reap the rewards

In order to avoid unnecessary stamp duty or conveyancing charges serious consideration is required as to "who" is purchasing the property.  Ideally the company should purchase the property in the first instance as otherwise you will double up land registry charges and legal expenses.  [Firstly acquiring in own name and then secondly when transferring to the company] Step 1 is to incorporate company.  Step 2 is for the company to purchase the property.  At this stage it is usually preferable to introduce funds by way of a  loan from the shareholders.  In any case if dividends are paid they carry  a refundable tax credit of 10%/20%.  Please give thought to restriction of tax relief on loans/ mortgages from an individuals perspective.  Make sure the loan is secured in the right place  [Company or individual] in order that it is not restricted and relief is maximised taking into account your current and anticipated future circumstances. For example if you have significant other income and are a higher rate taxpayer (20%) you may wish to take the loan personally so you obtain relief at 20%

UK Inheritance Tax - Sheltering UK property & Investments [ Commercial property ]

Until April 2017 If you were IOM resident and domiciled Purchasing UK property or investments in a Manx Company was totally effective in shielding your estate from  Inheritance tax.  In simple terms You / Your estate owns shares in a Manx Company outside the UK Inheritance Tax net as far as IHT is concerned and other capital taxes for that matter.  However From April 2017 HMRC will for RESIDENTIAL PROPERTY look through  Close companies to their shareholders and such property will be chargeable on their Estate. 

Please note that stamp duty charges apply so it is preferable for your company to purchase the property in the first instance.  Land duty is up to 4% of the sale price or market value and on equties 0.5%.  Legal costs, land registry fees and brokerage charge also need to be accounted for where applicable.

CHARGEABLE AND EXEMPT BENEFITS IN KIND

 

Chargeable Benefits Exempt Benefits
Accommodation, free or subsidised Approved profit sharing or savings related share option schemes
Board and lodgings provided Broadband connection
Clothing other than uniform Car parking fees used principally for business purposes
Dental cover for non employees Christmas party expenses up to £100 per head
Domestic staff provided Commercial vehicles such as a van or a lorry where the main business purpose is the transportation of goods and materials
Fuel provided Electric cars - does not include hybrid petrol electric cars
Gift vouchers Meals in a works canteen
Goods or services provided by an employer Medical Insurance, dental insurance and health screening for employees provided by an employer’s scheme
Heat and light provided or payment of personal bills such as rates, satellite TV, insurance Mobile telephone, where contract is in the name of the employer
Long service awards with a value of over £400 Nursery or crèche facilities directly paid to a registered child minding facility, by the employer, on behalf of an employee
Meals General benefits which do not exceed £400 per annum
Medical cover for non employees Personal computer and computer devices which do not exceed the aggregate cash equivalent of £1000
Membership of gym, golf club etc. Plant and machinery where used for business purposes
Motor vehicle and fuel provided Provision of a scheme to provide benefits to employees or dependents on retirement or death
Property below market value Public transport season tickets or multi journey tickets provided by the employer
Shares granted under unapproved schemes Safety work clothing such as hard hats, high visibility jackets and safety boots
Transfer of ownership of company asset to employee Sports and recreational facilities at an employer’s place of work

 

 

 

 

 

 

 

 

 

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