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.
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……
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:
- Contributes towards ideas, and research to help develop marketing strategies
- 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.
- Develops sales strategies and approaches for services, such as special promotions, sponsored events, etc.
- Helps to detail, design, and implement marketing plans for each service being offered
- Answers questions from clients about product and service benefits
- Create materials for email and general marketing
- Generate leads by contacting prospects through LinkedIn, Wework and other channels
- In person networking with entrepreneurs or similar network organisations
- Update company website with news and blogs, monitor SEO performance to capture leads
- Help to create contents and strategies for Video platforms such as Youtube, LinkedIn etc.
- Help to run and manage company branding
We would welcome your job application. Please send us your CV to: info@priceandaccountants.com
How you can offer your employees maximum benefits
It is always important to ensure that your employees get the maximum benefits possible from
working for you, both as a way to retain the best talent in your company by boosting morale,
and for your employees to save money, and feel secure in their workplace.
We are breaking down the many ways in which your company can offer excellent benefits to
your employees, all counting as tax-free expenses.
How can an employer offer employees something tax-free?
There are a number of non-taxable employee benefits and payments which you should know
about, as they allow you to provide benefits to your employees that they may deem very
valuable, at minimal cost to you. For most companies, this is a no-brainer.
To illustrate how this works on a day-to-day level, let’s use the example employee Joe
Bloggs, who works for Alpha Services. Both parties can benefit when Alpha Services offers
Joe things like advice on pensions, work-related training, and more. The below are all non-
taxable.
Tax-free employee expenses:
● Sticking with our example, Alpha Services can fund certain kinds of independent
advice in relation to employee shareholder agreements. This could benefit Joe
Bloggs without being taxable for the company.
● Annual parties or functions to celebrate employee or company success, or simply to
boost morale, are exempt. As long as they incur costs of no more than £150 per
head, then Alpha Services can throw a yearly bash for their staff, tax-free.
● One of Joe’s colleagues, Natalie, uses a wheelchair, and Alpha Services are not
taxed on the benefit of the private use of her wheelchair, as this enables her to work
for her employer. Similarly, for any other people using equipment or services to help
with their job (such as a walking stick or a hearing aid), this would be exempt also.
● Alpha Services regularly provides family fun days at their offices, where employees
can bring along their family members and enjoy food and entertainment. This
“goodwill entertainment” cost Alpha less than £250, so it is exempt from tax, subject
to various conditions.
● Once a year, Alpha Services provides Joe Bloggs and his colleagues with a health
check up or medical screening to ensure everyone is in shipshape, which is also
exempt.
● When Joe works late during big deadlines, a late night taxi is provided for him to
make sure he gets home safe, and this is exempt. Again, this would be subject to
certain conditions, such as the travel needing to take place after 9pm, but this does
apply when necessary.
● Sometimes Alpha Services provides free or subsidised meals for Joe and his team
when they close a big contract. This comes with certain conditions, but is a great
initiative as employees really appreciate this added extra.
● When Joe travels abroad on business for Alpha Services, any medical treatment he
needs (whether due to illness or injury) can be taken care of by the company, tax-
free.
● Alpha Services provides Joe with one mobile phone (for his use only, not to be
distributed to a family member) on a tax-free basis. Should Alpha decide to simply
give Joe money towards his own mobile phone in the future, this would be taxable.
● Alpha Services provides Joe with a car parking space near the Alpha building to
make his travel easier, which is exempt. They do the same for other employees,
providing motorcycle or bicycle parking spaces, too.
● Joe and Alpha Services have recently agreed to more flexible working arrangements,
which means he will be working from home a lot more. In this instance, Alpha can
pay up to £4 per week, £18 per month or £216 per year without supporting evidence
of this. Should Alpha end up paying more to Joe, they will be required to provide
evidence, or have an agreement in place with HMRC.
● Alpha Services help their employees with organising their pension, annuity, lump
sum, gratuity and similar benefits, and do not need to pay tax on any expenses
incurred during this process. They do this for Joe too, and this extends to any
member of his family or household that they help should he retire or pass away.
● Joe is nearing retirement age in a few years, so Alpha Services have offered him
pension advice up to the value of £500. Though this is often offered to those nearing
retirement age, younger employees can also benefit from this, and it is tax-free.
● When Joe buys equipment, stationery or anything else needed to perform his duties,
and uses his own payment card, Alpha Services reimburse him for this, as long as
the items were for work use and not personal. This is tax-free.
● Joe Bloggs had to relocate in order to take up his position at Alpha Services, so the
company paid for his removal expenses, exempt from tax and NICs. This is subject
to certain terms, but essentially the first £8,000 of Joe’s moving expenses may
qualify for this exemption.
● In order for Joe to advance in his career and further his development, ongoing
training is provided by Alpha Services to help Joe grow in his role. The costs incurred
from this are exempt from tax.
● Alpha Services wants all employees to be as healthy as possible, so they provide
their staff, including Joe, with a gym membership. As standard, any sports facilities
provided by an employer for staff and their families can be exempt.
● Access to mental health services is important to the management team at Alpha
Services, in order to minimise absenteeism due to stress and burnout. They provide
Joe and the rest of their employees with optional welfare counselling, which is
exempt from tax.
● Alpha Services sometimes provide Joe and his team with transport options to take
them to and from work, meetings and trainings. The expense of shared vehicles,
buses, bicycles or subsidised public transport is exempt from tax. Similarly, if Joe is
travelling for work and incurs the cost of strikes or industrial action, fees or tolls, or
unexpected accommodation needs, Alpha Services can reimburse him on a tax-free
basis.
● As a general rule, most employee benefits are exempt from tax and NICs if the cost
does not exceed £50. This is subject to many conditions, so it is always best to chat
to an advisor where possible.
If you want to find out more about how you can maximise your employee benefits, get in
touch with our team at Price & Accountants and we would be happy to 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.
SHARES OR LOANS? Why lending capital can be more tax efficient than buying shares?
Every startup needs working capital to grow, and there are several ways to get this… but which one is the best? As the founder or owner, you could provide capital by purchasing more shares or by simply lending your company the cash. This could offer a more speedy return on your investment, and make you more tax efficient at the same time.
- Is funding by buying shares not advisable?
Many people buy shares in order to provide more capital, and while there is nothing wrong with this, depending on your situation there may be other, more beneficial ways. One of the biggest disadvantages of buying shares is that you may need to wait a while for any Return on Investment (ROI). Your company can pay you dividends but only when it is making a profit and in the case a new startup business, it may take a while. There’s also no guarantee that you’ll see a return on your investment at all.
- What’s so great about funding by loaning capital?
If you’re looking for a faster ROI as many founders, then lending your company the money could be the way to go forward. Providing a loan means that you can be paid interest straight away, plus loans are generally more flexible than being paid dividends as you can receive some or all of your money back without being required to cancel share capital, which could significantly affect your tax. This leaves you with more control of your money, which as an investor, feels much safer.
- How can being married help?
If you happen to be married or in a civil partnership, then lending to your company could bring you even better tax advantages, so it’s worth exploring this avenue fully.
These tax advantages also work if you are unmarried with a “significant other”, however as a general rule, it’s much easier if you have combined finances through a lawful marriage or civil partnership.
This arrangement can help you save on tax if your partner pays a lower rate of tax than you do, as they can lend you money and charge you interest. You then lend the money to your company and charge the company a similar interest rate.
- How does this work?
Doing things this way requires that a) the interest is taxable, and b) any interest paid on qualifying loans that are used for company funds, the purchasing of equipment, or for working capital for a trading company are tax deductible.
Here’s an example that breaks this process down:
Joe is a director, shareholder and higher rate taxpayer of the Joe Bloggs Ltd., and the business requires some new equipment. Joe’s wife Jane is a basic tax payer, and so she makes an interest-free loan of £100,000 to Joe, who then lends this to his company Joe Bloggs Ltd., charging interest at 7% per annum.
Joe is liable for tax of £2,800 (£7,000 x 40%) on the interest he receives from Joe Bloggs Ltd. Joe doesn’t pay Jane any interest which means there is no tax relief for him to claim (though the loan to Joe Bloggs Ltd. does qualify).
Alternatively, if Jane decides to charge Joe the same rate that he charges Joe Bloggs Ltd. (7%) instead of an interest-free loan, then the interest Joe pays Jane will be tax deductible. This means the taxable interest (£7,000) he is paid by Joe Bloggs Ltd. equals the tax deductible interest he must pay to Jane. One cancels out the other, and instead of paying £2,800 in tax, Joe pays nothing.
Jane’s loan to Joe isn’t a qualifying loan, so she will have to pay tax on the interest she receives from him. Luckily, as Jane is a basic rate taxpayer, her bill is £1,400, meaning a tax saving of up to £1,400, and possibly much less depending on Jane’s other sources of income. As mentioned earlier, the advantage of doing things this way means that even if Joe Bloggs Ltd. is not making a profit at the moment, it can still pay Joe a return on his loan. This is often the best and most tax efficient way for company founders to provide capital to their business.
Want to find out more about how this could help make you more tax efficient? 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.
How to reduce tax rates on property gains?
If you have recently sold a residential property, you will likely have made a healthy capital gain and discovered that special higher tax rates apply to this. There may be a way to defer paying this tax and reduce it overall. Here’s how:
- EIS tax reliefs
Investing in a company which qualifies for EIS (Enterprise Investment Scheme) tends to offer a few tax advantages, such as up-front income tax relief, capital gains tax (CGT) free growth on the investment and capital gains tax deferral relief.
CGT deferral relief means you can defer the taxation of any capital gain you made in the previous year or the three years following your EIS investment. When this happens, the gain becomes taxable only when you sell or transfer your EIS investment.
Let’s look at an example to demonstrate this process:
Joe makes capital gains of £100,000 in 2018/19, and makes a qualifying investment of the same amount in an EIS company. He claims CGT deferral relief, meaning he is not required to pay the capital gains tax that would be due on 31st January 2020. Joe then sells his EIS shares in 2025/26, triggering a tax charge on an amount that is equal in value to the deferred gain taxable for that year.
- How does this work for residential property gains?
If you have recently sold a residential property, then you will know that the rules explaining how the deferred gain will be taxed are worded in a very specific way, and you can make the most of this by doing research and using the rules to your advantage.
As of April 2016, rates of tax on capital gains are 10%, as long as your income combined with the gains comes to no more than the income tax basic rate band. If they exceed this, they are then taxed at 20%. However, when the gain concerns residential property (such as houses, flats, apartments, land intent for building, and so on) the rates are 18% and 28% respectively.
- How does EIS deferral relief help you be more tax efficient?
By using EIS deferral relief, you can change the nature of a residential property gain to a non-residential one, and therefore benefit from the lower, normal CGT rates of 10% and 20%. You’re probably wondering why more people don’t do this? Though this tax-saving arrangement is entirely legitimate, HMRC discourages it by making the rules hard to get around (but not impossible).
- How do you overcome HMRC guidelines?
It’s difficult to find information that helps you navigate HMRC guidelines, especially since there are a lot of varying answers online. Some sites will indicate that the previously deferred gain is only liable for CGT at 10% or 20%, and others (more in line with HMRC guidelines) will tell you that the deferred gain retains its original status as a residential property gain. Understanding the legislation is the key to making this distinction, and this is something that Price & Accountants can assist you with.
- HMRC guidelines in layman’s terms
In the Schedule 5B Taxation of Chargeable Gains Act 1992, you will find the EIS deferral relief rules explained in full. This states that the revived gain is “equal to so much of the deferred gain” in proportion to the amount of EIS investment sold.
Here’s a simple example of this to break it down further:
Joe sold 50% of his EIS investment in 2025/26, so the capital gain taxable is an amount “equal to” the same proportion, i.e. 50% of the original gain. As is often the case, minor, seemingly insignificant wording details in tax legislation can completely alter a tax bill. In the case of the EIS deferral relief rules, an EIS investment could potentially reduce your tax rate by almost half, which is an amazing saving.
- When must this be paid?
By making an investment in an EIS company, you make it possible to defer when tax is payable on the gain, and you will only pay this when you sell or transfer the investment. Although HMRC rules disagree, most tax experts will advise you that the gain changes its nature because of the deferral and so special higher rates of tax no longer apply, helping you be significantly more tax efficient.
If you want to find out more about how your residential property sale could be more tax efficient than you think, get in touch with our team at Price & Accountants. 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.
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.
How to significantly reduce your tax bill by selling shares to your partner
Looking to become more tax efficient this year? Gifting shares of your business to your spouse is often recommended by small business accountants and tax advisors, in order to make use of both you and your partner’s tax-free allowances, and ultimately minimise the tax on dividends the company pays. This is a great move to make, however if you’re looking for ways to save even more and you also happen to have a mortgage, your accounting firm may not have told you to consider selling shares instead of gifting them. Here’s what you need to know:
- Firstly, why is joint ownership best?
Instead of owning your business alone, it is widely considered good practice to own it jointly with your spouse whenever one of you is paying a higher rate of tax than the other. When you both own shares in the company, you are both entitled to use your tax-free allowances, dividend nil rate band, and other rate bands, in order to reduce the tax paid on your company dividends. Owning with your partner is a great way to become more tax efficient.
- Should I have made my spouse a shareholder when I formed the company?
If you’re thinking it’s too late to make your spouse a shareholder in your company, it’s definitely not. Even if your spouse was not made a shareholder in the beginning, HMRC will still allow you to transfer ordinary shares to them as a gift in order to reduce your tax bill. No matter how long ago you formed your business, you can start the process of making your spouse a shareholder at any time.
- How does this help reduce my tax bill?
Here’s an example of this tax-saving plan in action:
Joe started his company (Joe Bloggs Ltd.) over ten years ago. It has grown considerably since then, and is now being valued at around £600,000. Joe Bloggs Ltd. pays Joe £100,000 per year in dividends, of which almost £50,000 is taxed at the higher rate, and naturally, Joe would like to save on tax wherever possible.
Joe’s wife, Jane, brings in less income, and so Joe’s accountant suggests that he gift half of the shares of Joe Bloggs Ltd. to Jane, in order to make the most of her tax-free allowances and basic rate band.
- Tax savings comparison
If you believe you could qualify for tax relief by implementing the plan above, you can discover the savings you could make in your business by getting in touch by emailing us to info@priceandaccountants.com or call us 020 3735 5119 at Price & Accountants to discuss how we can help you save on your tax this year.
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.
7 Key Mistakes SMEs Should Avoid To Improve Business Performance
At Price & Accountants, we have worked to overhaul and streamline the financial direction of many SMEs, and over many years of experience we have identified key mistakes that affect businesses more than they realise. This could have a negative impact further down the line on their businesses. Here are the key things that could be preventing your performance:
1. Lack of planning and analysis
Without a strategy in place and a method of analysing what you have done in the past, you are essentially planning to fail. Having a plan for your financial operations and goals is crucial in order to achieve them, and to avoid later complications.
2. Relying solely on year-end accounts
Many businesses use their year-end accounts only to analyse the historic data, however this can also be one of the most beneficial insights into your business, not only telling you what has occurred, but what you need to do next.
3. Oblivious to the metrics in the business
Most businesses we have come across do not know or understand key metrics within their organisation, such as KPIs and ratios. Understanding how to use these information could be vital to your future success.
4. Lack of a cash flow model
Not having or utilising a cash flow model is one of the biggest mistakes we see SMEs make. If you are experiencing cash flow problems (or think that you could be, but are not sure) then we urge you not only to make this a priority, but to reach out to us for a free consultation.
5. Avoiding cloud-based accounting
This is by far the most efficient way to manage your finances, and without it you are undoubtedly wasting time and money, and will often be left searching for answers.
6. Lack of customer analysis
Knowing your target customer and the key financials surrounding their interactions with your business, is not only advised, but could be the difference between your success or failure further down the line.
7. Poor financial productivity
Productivity and performance improvement applies not only to the everyday running of your business, but is also highly relevant to your financial goals. Many businesses waste money on poor productivity and low performance, and this is an area we have helped many clients refine and streamline.
If you feel that your business is suffering from any of the above, feel free to reach out to Price & Accountants for a free coffee and consultation on how we can help:
Email info@priceandaccountants.com
Call 020 3735 5119
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Limited companies filing deadline
Limited companies filing deadlines.
Limited companies have filing deadlines for accounts and tax returns.
Penalties (for private limited companies) for late filing with HMRC are summarised below:
ACTION DEADLINE
- First accounts with Companies House 21 months after date incorporated
- Annual accounts with Companies House 9 months after year end date
- File company tax return with HMRC 12 months after end of accounting
Period
- Pay Corporation Tax or 9 months and 1 day after Corporation
- Tell HMRC that no corp tax is payable Tax accounting period ends
The penalties (for private limited companies) for late filing of limited company accounts with Companies House are summarised as follows:
TIME AFTER DEADLINE PENALTY
- Up to 1 month £150
- 1 to 3 months £375
- 3 to 6 months £750
- More than six months £1,500
The penalty is doubled if annual accounts are late two years in a row.
Limited companies are required to file a confirmation statement (previously an annual return) with Companies House once a year. The company should receive an email alert or a reminder letter when the confirmation statement is due. The due date is usually a year after either:
- the date the company was incorporated
- the date the company filed its previous annual return of confirmation statement.
The company can file the confirmation statement up to 14 days after the due date, with no penalty.
It can be very difficult for a small business owner to understand several deadlines, Price & Accountants can help you to understand of these deadlines. Feel free to book an appointment with us today by completing contact us form or email: info@priceandaccountants.com or call 020 3735 5119