If you’re a Director of a small business, there are lots of ways to reduce your tax bill legally. Some simple checks, such as making sure you’re getting any tax credits you might be eligible for, could put money back in your pocket with minimal effort.
So make 2018 the year that you max your tax benefits with our top tips on Mileage, Childcare and Pensions ……
It is often not worthwhile to provide a Company Car to a Director unless it is a cheap, low emission car.
Where the Director uses their car for business journeys, the Director can be paid a mileage allowance which is tax free providing that the rate per mile does not exceed the approved amount which is 45p per mile for the first 10,000 miles in the tax year and 25p per mile for additional miles. Travelling from home to the business premises does not count as business travel, it is commuting.
Reclaiming VAT on Mileage allowance
What is often overlooked is that the Company can reclaim VAT on the fuel element of the mileage allowance if it is VAT registered and not using the Flat Rate scheme.
The amount of VAT that can be reclaimed is based on HMRC’s advisory fuel rates (https://www.gov.uk/government/publications/advisory-fuel-rates)
The amount of VAT reclaimable will depend on Engine size, and whether Petrol, Diesel etc.
Engine Size: 1401cc to 2000cc
Type: Petrol Engine
Mileage: 10,000 miles per annum.
You can claim £4500 in mileage from your business.
The fuel would have cost you about £1400 in the year
Your company can claim back about £233 in VAT (if you are VAT registered)
The Government is introducing new ways to help parents with their childcare costs. To see what is best for you visit www.childcarechoices.gov.uk.
It is still possible for the Company to pay for childcare by way of salary sacrifice.
The exempt amount is £55 per week for basic rate taxpayers, that’s £2860 per annum. (The exempt amount is just £28 per week for higher rate taxpayers)
Currently each individual is allowed one exempt to cover childcare irrespective of the number of children.
The Company making pension payments on the Directors behalf can be a worthwhile benefit.
There are limits on how much can be contributed to your Pension while still receiving tax relief (annual allowance)
If you are making contributions then you are limited to your earnings in the year and for Directors that are paid low salaries and dividends then this can be highly restrictive, however if the Company makes the contributions then they could contribute up to the annual allowance of £40,000 per annum
The contributions are generally deductible in computing the Corporation Tax bill.
Accountants can advise on tax issues but for advice on Pensions you will need to speak with an Independent Financial Advisor.
There is a separate exemption of up to £500 per year for Pensions advice.