Ultimate Tax Saving Guide

Ultimate Tax Savings Guide for UK software & Tech Businesses

Most start-up tech businesses can receive an average of £124,000 cash or cash equivalent with prudent tax planning and successful grant applications.

Ultimate Tax Guide

This article includes the following sections – 

1. About us

2. Ultimate tax savings concepts

Employment allowance relief
Super deduction allowance
R & D tax credit
Company losses to carry back
Investment in electric car
Salary sacrifice pension scheme

3. Director’s tax planning

4. How Price & Accountants can help

5. The most common mistakes

6. Our process: start to series A funding

7. Our on boarding process

Ultimate tax savings concepts for small businesses

I Claim up to £5,000 with the employment allowance relief Employment Allowance is a tax relief which allows eligible businesses to reduce their National Insurance contributions (NICs) bill each year. You can claim this if you’re a business, and your employer Class 1 National Insurance liabilities were less than £100,000 in the previous tax year. From April 2022, the Government has increased the Employment Allowance relief from £4,000 to £5,000 to further benefit SMEs.

II Invest in your business with super-deduction allowance: To spur business investment, the Government has introduced a new allowance which enables companies to cut their tax bill by 25 pence for every £1 they invest in any qualifying machinery and equipment. This can include the purchase of computers, most commercial vehicles and office furniture and can be claimed in the year of purchase.

III Invest in software development – cash back on the eligible expenses:
Research and development (R&D) tax credits are a government incentive designed to reward UK companies for investing in innovation.
a. Most loss making businesses claim R&D rebate which works out 33pm for every £1 spend on R&D.
b. You can choose to reduce your corporation tax liability using the R&D claim. Business must be profit making to……

Salary sacrifice pension scheme:

Salary sacrifice pension scheme

Salary sacrifice pension scheme:
Salary sacrifice pension scheme:

Can both the employer and employee save money when making pension contributions?
Pension salary sacrifice is a method of saving National Insurance Contributions (NIC) for employers and employees and yet it is reported that almost 50% of employers do not have such arrangements in place.
With NIC rate increases (due to the Health and Social Care Levy) from 6th April 2022, there is now a stronger case for employers to consider it as it can lead to a saving of up to 28.3% on employee pension contributions dependent on the level of earnings. The Government has also confirmed it has no intention of abolishing salary sacrifice for pension contributions.
A salary sacrifice arrangement is an agreement between the employer and employee where the employee agrees to a reduction in salary or bonus and in return receives a benefit. The benefit here is a contribution by the employer of an equivalent amount into the employee’s pension scheme. The employee pension contribution therefore becomes an additional employer contribution and there is no difference in the total pension contribution made into the scheme.
Traditionally employee pension contributions attract tax relief but not NIC relief which means the employee has to pay NIC and the employer has to pay NIC. Under a salary sacrifice arrangement, no NIC is payable as the gross pay of the employee is reduced.
On employee pension contributions, for a typical basic rate taxpayer, this would lead to a saving of employee’s NIC of 13.25% and for the employer it would lead to a saving of 15.05% (there could also be an additional saving of 0.5% if the employer pays the apprenticeship levy). Employees can use their savings to either boost take home pay or increase their pension contributions. Employers are also at liberty to share some savings by increasing the pension contributions made for employees.

R&D note:
An increased saving would occur for employers through R&D claims. Provided the employees are linked to R&D activities, the entire pension contributions will be subject to R&D tax relief. Contributions under the pension salary sacrifice are considered employer pension contributions and therefore allowable for R&D purposes.

Under the current economic climate employers should look into offering an improved benefits package for employees where both parties financially benefit. There are many considerations that need to be taken into account in order to ensure that salary sacrifice arrangements are beneficial for both employers and employees as there is no “one fits all” arrangement.
How can Price & Accountants assist?
Our accounting firm in London is equipped with the best accountants and tax advisors that provide clients with tailored advice and support in all tax-related issues and tax planning. We would be happy to go through feasibility for pension salary sacrifice arrangements on a no-fee obligation basis to ensure it can be beneficial to both the employer and employee population. Get in touch with our team right away to learn more.



feasible for your Limited Company to add value to your pension

Is it feasible for your Limited Company to add value to your pension?

feasible for your Limited Company to add value to your pension

Pension contributions through your Limited Company provide substantial tax benefits. In the UK, pensions are deemed an allowable expense by HMRC and thus can be compensated against your Corporation Tax bill. 

 

There are two ways to contribute to your pension:

  1. By making individual contributions
  2. By making direct contributions through your Limited Company

 

Both choices have tax benefits and depending on the situation, one may be more favourable than the other. 

 

Contributing to a personal pension – the tax implications: 

 

Every payment you make into your pension is tax-deductible and the amount determines the rate of income tax you pay.

For example, if you are a basic rate taxpayer and you pay £100 into your pension, you will save a total of £125 after tax relief is applied. 

Nowadays, you can contribute 100% of your taxable income up to a maximum of £40,000.

If you earn less than £3,600 per year or have no income, you can make pension contributions of up to £3,600 per year.

 

Making contributions to your pension as a director of your Limited Company – what are the tax implications?

 

Getting a moderate salary and dividends is the best way to reduce your tax liabilities and maximise your take-home pay, but it isn’t the best way to increase your pension because dividends aren’t considered ‘relevant UK earnings.’

 

Therefore, the best way would be to make pre-tax contributions to your pension through your Limited Company that count as allowable expenses. This enables your company to receive tax relief against Corporation tax, whereby you could save up to 19% in Corporation Tax in the current tax year.

 

How Price & Accountants can Assist? 

 

Our accountants based near Liverpool Street Station, London can provide our clients with tailored advice and support in all tax-related issues and tax planning. This is a fabulous reason to be a client of Price & Accountants! Get in touch with our team right away to learn more. 

VACANCY AVAILABLE

We need a passionate, experienced, metrics-driven marketer to grow the practice and enhance our brand.

To be successful in this role, you will have relevant experience and demonstrated success planning and implementing marketing campaigns and you will be passionate about identifying and testing new opportunities to drive growth.

We are a team of five friendly professionals from a diverse group, who work hard. You will directly report to the director however you will be working across the team and advisors.

For the right candidates we offer competitive remuneration (up to OTE £30K) including quarterly bonus (based on new business), Statutory holidays and pension contribution, Smart working environment. Flexible working from home and two to three days in our super modern covid friendly office in Moorgate, London.

You will have unique opportunity to learn from professional entrepreneur, director.

You are going to love this job:

  • This role would suit someone with minimum two years experience in this space.
  • You are a persuasive writer with good presentation skills and phone manner.
  • Thrive on creating, implementing and managing multi-channel marketing campaigns
  • You are excited by the challenge of constantly improving marketing effectiveness and ROI
  • Have experience using marketing automation software such as ‘active campaign’

Great opportunity to get involved in all aspects of marketing:

  1. Contributes towards ideas, and research to help develop marketing strategies
  2. Sets marketing schedules and coordinates with colleagues and other professionals to implement strategies across multiple channels such as CRM system (Active Campaign), LinkedIn, You tube.
  3. Develops sales strategies and approaches for services, such as special promotions, sponsored events, etc.
  4. Helps to detail, design, and implement marketing plans for each service being offered
  5. Answers questions from clients about product and service benefits
  6. Create materials for email and general marketing
  7. Generate leads by contacting prospects through LinkedIn, Wework and other channels
  8. In person networking with entrepreneurs or similar network organisations
  9. Update company website with news and blogs, monitor SEO performance to capture leads
  10. Help to create contents and strategies for Video platforms such as Youtube, LinkedIn etc.
  11. Help to run and manage company branding

We would welcome your job application. Please send us your CV to: info@priceandaccountants.com

Why your company car could be costing you

Why your company car could be costing you?

Why your company car could be costing you

A company car scheme is a great incentive for employees, allowing businesses to attract and retain the best talent, but every year the tax and national insurance that goes along with company cars rises, and it could be costing both you and your company more than necessary. If your car is more than a few years old, it may be more tax efficient to transfer ownership to you. Here’s why:

  • How does company car tax work?

If you have been driving a company car for a while, you will likely to know that the income tax is primarily calculated on the list price of the car was new and when it was first registered approval on its CO2 emissions. The price of the car when new will remain the same, but the CO2 emissions will inevitably creep up year after year. When this happens, it means that your company car is costing you more in tax, and your company more in NI with each year that passes. Meanwhile, as with any vehicle that is being used day-to-day, the value of the car decreases. This is why it can eventually become much more tax efficient for both parties if your company hands the car over to you instead.

  • What makes this more tax efficient?

Let’s look at an example of this in action to explain how it works:

Jane gets a new car from her company, Acorn Ltd., which costs £28,000 as of April 2014. It is estimated that this car will be replaced in April 2021. At the moment, the car is worth £12,000, and has CO2 emissions of 175g/km. Jane will be taxed on £10,360 in the year 2019/20, and also in 2020/21 (total: £20,720) and Acorn will be required to pay Class 1A national insurance on this amount.

If, instead, Acorn gives Jane ownership of her company car on 6th April 2019 (the beginning of the new tax year), they will only need to pay a one-off tax and national insurance charge on £12,000, saving them money in the long run. As a higher rate taxpayer, this transfer will mean Jane saves £3,488 in tax, and Acorn saves £1,203 in national insurance.

  • Surely that’s a no-brainer?

For the most part, it is. But while this may seem like a great idea, before you jump ahead and start the process there are a few other things to consider, primarily the cost of running the car as this can affect the cost effectiveness of this plan. If Acorn Ltd. pays the running costs of the vehicle and gets tax relief on these costs, they can continue to do so even after the car has been transferred to Jane. However, this would mean Jane will need to pay tax on these running costs paid by Acorn – why would Jane do this, you ask? Basically, she wouldn’t. To further equalise things and make the transfer fair on both parties, Acorn can pay Jane a mileage allowance for her business journeys, counteracting this tax and making both Jane’s and Acorn’s costs lower overall.

  • How can my business pay me a mileage allowance?

Imagine Acorn Ltd. pays the running costs of what is now Jane’s car (let’s say £1,600 in 2019/20 and £1,700 in 2020/21). During this period, Jane drives 9,000 business miles, and because she now owns the car Acorn can pay her up to 45p per mile (tax and NI free) to cover the cost of fuel and any other charges she may incur.

If the cost of fuel comes to, for example, 13p per mile, this leaves an extra 32p per mile that Jane can use to partially pay back Acorn for the £3,400 worth of running costs it pays, leaving a mere £520 liable for tax and national insurance.

This of course means that the saving made by Acorn is reduced by transferring the car to Jane, but overall both parties are still much better off than they were previously.

Remember…

  • Look into the tax and national insurance of company cars that are more than a few years old, and identify where there are savings to be made depending on the car’s list price, CO2 emissions, mileage and running costs.
  • Make sure your contract is directly with the insurance company or garage, as this will ensure your tax and national insurance are as cost effective as can be when your company pays the running costs of your own car.
  • When your company transfers the company car to you, they lose an asset, so in the example above, Acorn lost £12,000 from their balance sheet because the car no longer belongs to them, it belongs to Jane. As long as Jane is the only shareholder in Acorn then this won’t matter, but if other shareholders are involved, then this transfer may need to be compensated.

 

If you would like further clarification on the above, or want to find out more about becoming even more tax efficient with your company car setup, get in touch with our team at Price & Accountants to discuss how we can help. We are committed to helping small businesses in London and around the UK with their accounting needs, using Xero online accounting software and our expert team of advisors, all dedicated to helping your business flourish.