You probably accept the need tax to pay for essential services, but that doesn’t mean you have to like it!
In fact, I have yet to meet a person who enjoys paying more than they have to.
The problem with our UK tax system, particularly for business owners, is that what you pay is so heavily determined by two key factors:
- Your knowledge about tax
and
- How you arrange your financial affairs (and business)
Good news – and the challenges
The good news is that by reading articles like this, you are already on the path to improving the knowledge part of the equation. Congratulations! Understanding what can (and can’t) be deducted for tax purposes is absolutely key to reducing your tax bill.
The challenge, from our point of view as accountants working with small business owners, is that we can’t be inside your head when you are considering a purchase. This is frustrating, as so much tax can be saved at this point.
So we want to arm you with the knowledge you need, and share with you this mantra:
“Can I make it a ‘business’ problem, and not a ‘me’ problem?”
So what does this actually mean? Let’s start with what you actually pay when you buy something. When you buy something personally, you’ve potentially already paid all the taxes below, just to get the money to purchase the thing you are buying!
- Corporation Tax (if Limited)
- Income Tax
- National Insurance
- VAT
If it comes from your own personal account and not from any business income, you might have even paid Capital Gains Tax, tax on your savings interest, and possibly Inheritance Tax too – nasty!
Doing the maths
It doesn’t take a tax or maths genius to work out that if you didn’t have to pay some of those taxes on a given purchase, it would be far cheaper overall.
In general, your personal expenditure cannot be paid for by your business (at least not without some very unfavourable tax consequences!). However, you’d probably be surprised how much crossover there is in terms of the personal/business divide, once you understand what is possible.
What your company can buy
Learning what your business can pay for is crucial, particularly where you are already buying the item anyway. Here are some examples to investigate:
For sole traders:
- Business mobile phones
- Travel costs / mileage in personal cars
- Subsistence / food that might be claimable
- Pens, paper, electronic equipment
- Business books or Audible credits
For limited companies:
- Trivial benefits (think small, occasional gifts)
- Annual functions (think meals out)
- Entertainment (not tax deductible, but with potential benefits overall)
- Canteen expenses (milk, fruit, etc)
- Pensions advice
So, when you are about to head out or click to buy an item, think about this mantra:
Can I make it a ‘business’ problem?
Then do your research before you part with your pounds.
Boosting your tax knowledge
A key part of our mission is to make tax more understandable for everyone. The HMRC website is getting better slowly, but you still need to know what you’re looking for, and the correct terminology to describe it.
Instead, make a cup of coffee, and research what you need to know right here at our website. Just use the find function to search over 220+ straightforward blogs on tax topics.
Prefer to watch a video? Most of the blogs have a corresponding video at YouTube, which often go into more depth than the blogs.
You can also listen to our podcast and learn more whenever you wish – on the train, in the car, lounging on a beach, the choice is yours.
Of course you can skip some of that hard slog and simply appoint us as your accountants……
… then you can then contact us with any odd questions, and one of our team will get back to you with an answer tailored to your specific business set-up.
Whatever you choose to do, knowledge is definitely power, or at least, tax saving.
- Call us
- Send us a message
- Join us at one of our free HeelanHub networking events and meet us in person. More details here.
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About the author:
Dan Heelan is the Business Services Director of Heelan Associates, an accounting firm that helps small business owners across the UK start, survive, and grow.
With a background as a small business owner himself, he discovered his passion for accounting and tax early in his journey and now focuses on empowering fellow entrepreneurs with the knowledge and tools to navigate the financial side of running a business.
You can see and hear Dan in action in his regular: