As a limited company, planning for your taxes looks different than if you were an owner-operator or a sole proprietor. The HMRC is clear on the distinct difference between business entities and how they are required to pay tax. By planning and preparing for your limited companies’ taxes, you can make sure that you are being the most fiscally responsible possible and ensure that you are maximising all available tax reductions.
Why is Corporate Tax Planning Important?
Running a limited company, or any company, without a plan is a recipe for disaster. Particularly when it comes to your taxes. There are many benefits to intentionally planning your corporate taxes.
- You avoid paying fees and penalties for missing deadlines.
- Planning enables you to avoid costly delays due to simple errors and mistakes.
- A proper tax plan for your limited company allows you to reduce your tax burden as much as legally possible.
- As the director of your limited company, you will have peace of mind knowing that your taxes are prepared before they are due at HMRC.
Where your plan is most evident and effective is in the reduction of your company’s tax liabilities. Here are a few categories to pay close attention to.
How to Reduce Your Tax Burden as A Limited Company
- Maximise Legitimate Expenses
All expenses that are incurred for the “necessary and wholly and exclusive day-to-day operations” of your business can be deducted from your profits. This can include insurance, mileage, marketing, consumables (ink, paper, etc.), professional development and business equipment like laptops, phones etc.
- Transfer Personal Assets into Your Company
When launching your company, it is common to use your own assets to get the company off the ground. If you transfer these assets from your possession to your company, they can be used as a business expense. If they are not new when transferred, the price must be appropriate market value.
- Special Categories
Many special categories for deductions and tax relief exist that you may qualify for. Does your company profit from patented inventions? Are you involved in a creative industry? Do you spend money on research and development (R & D)? If so, you may qualify for additional tax relief and benefits.
- Director Salaries
As a limited company, you are likely taking a combination of salary and dividends. Make sure to have a plan to maximise the tax effectiveness of this strategy.
- Staff Parties
Staff party costs (up to £150 per person) can be deducted as an expense. These rules and conditions are specific so ensure that your party meets the criteria before claiming this one.
- Training Costs
It pays to train your employees, in more ways than you think. You can recoup training costs. This is meant to allow you, in a tax-free way, to develop your employees into better staff.
- Pensions
Pension plans can be tax-deductible as
well so knowing how much can be deducted and in what way is critical for you
and your employees to get the most value out of your pension plan.
- Annual Investment Allowance
The annual investment allowance is designed specifically for the purchase of equipment and machinery. As this is an investment into the future productivity and efficiency of your business, the HMRC allows you to deduct up to £1 million for qualifying purchases. Knowing how and when this can positively affect your business is critical in making the most of your investments into your company.
Tax Planning is Easier with an Accountant
It’s clear that tax planning for your limited company can become complex and is a nuanced subject. Hire an accountant, such as AccountingPreneur, to ensure that your limited company is doing its best to reduce its tax burden while being as profitable as possible.