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Are You Maximising The Benefits Of Your Limited Company?

April 19, 2016

Advice on Private Residence Relief changes from Optimise Accountants

Do you own a limited company?

Are you maximising the benefits of using a limited company?

The problem — tax, tax, tax 

The issue we all have is the amount of tax we pay. In a limited company this includes:

  • The company will pay corporation tax on profits made;
  • The company will pay national insurance if it pays you as an employee more than £8,060 (2016-17);
  • You will pay national insurance on any wages above said amount;
  • You will pay tax on any income above the basic allowance of £11,000 (2016-17);
  • If you receive benefits in kind such as medical insurance, car, fuel then you will pay not only income tax but you will also pay employers national insurance and potentially employee national insurance.

I wrote an article some time ago that suggested that you should have a lease car and claim mileage against the company. The reason for this is that if you bought the car instead:

  • The benefit in kind would give rise to a P11D benefit in kind and you would pay income tax and national insurance on this.
  • Although the company would have a tax reducer (cost of car) you would pay income tax of 20%, which is going to be greater than the corporation tax break in the future when it drops to 17%.

You would therefore be worse off.

Car without a benefit in kind

You can have a car paid for by the company for your benefit provided that you:

  • Are not a director of the company; and
  • Are paid less than £8,500 (this includes wages and benefit in kind values).

This means you can earn £5,000 in wages and have a car that has a benefit in kind value of £3,500 (car and fuel).

To see how much tax you will be paying please feel free to download our car benefits in kind calculator.

Sadly, if like me you are a director or you pay yourself a wage of more than £8,500, then you will not be able to take advantage of this.

Loans

If you are an employee of a company then you can take out a loan from the company tax-free provided the loan does not exceed £10,000. For more information on loans from limited companies please read my previous article.

Any loans exceeding £10,000 will be deemed to be a taxable benefit and will be charged based on the HMRC’s official rates of interest.

Directors have to follow much stricter guidelines so read the above linked article for more details.

A list of other tax-free benefits

You can get some other company benefits which are tax-free. These include:

  • meals in a staff canteen;
  • hot drinks and water at work;
  • a mobile phone (yes the company can pay for your phone and calls — one phone per person);
  • workplace parking;
  • Christmas parties can also be tax-free if they cost £150 or less per head and are open to all employees.

Your employer might provide tax-free childcare support, including childcare vouchers.

If you want to understand how to implement this strategy or to discuss other finance/tax questions then please book some time with us using the below calendar:

If you are looking for a new accountant then please book some time with us using the below calendar. Please note that this booking is to describe our services and will not be used to discuss your personal tax affairs.



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Telephone: 0115 939 4606
Email: simon@optimiseaccountants.co.uk