Part 1: Managing Taxes, Expenses & Claims
Welcome to the Houzz Pro 3-part ‘Hot Topics In Financial Management’ series of articles and webinars, in which we’ve partnered up with Raj Singh, a financial expert from 5 Rivers Accountancy, to bring you practical knowledge and actions that will help improve your firm’s finances.
To kick off the series, we begin with key industry insights on how to correctly set up your business' taxes, expenses, and claims in order to take advantage of all of the potential incentives available today to help you run your business.
Read on for valuable financial tips on managing your taxes, expenses and claims, as well as watching the webinar below for more brilliant advice.
Travel and subsistence
Despite many of us working from home these days, for many people in the design and construction industry, travelling to visit sites, meet clients and suppliers, and attend trade shows, is still very much part of their day to day, Fortunately, travel expenses are fully tax deductible, as are the teas, coffees and food your consume while travelling.
The following travel and subsistence expenses are fully tax deductable:
- Any taxi, train or bus fares
- Mileage in your own car, charged at 45p per mile
- Refreshments, such as drinks and sandwiches.
Top tip: Use a separate business credit card to track your expenses, not your personal one, so you can maximise your claims against your profits and save on corporation tax.
Work from home
Over the past few years, working from home has become commonplace in many industries, and therefore HMRC offers professionals a £6 per week working from home allowance, which is an allowable tax deduction that can be claimed back against the company.
Another way of claiming this allowance, is to proportion a sixth of your household expenses (such as energy bills and council tax) for your work from home allowance and claim this back from your company. For example, if your yearly household expenses are £3000, then your work from home allowance will be £500.
Equipment
Any equipment that is relevant to your trade and helps you do your job is deductible from your profits. This could be equipment such as tools, mac books, cameras and printers.
The government has recently introduced a new scheme called the Annual Investment Allowance, which allows you to deduct 100% of equipment costs, up to one million pounds in total, through your business.
Top tip: Up until the end of the next tax year ending 5th April 2023, you can claim 130% deduction on your equipment. For example, if you purchase a computer before this date and it costs £1,000, you can actually deduct £1,300 off your business’ profits.
Vehicle through the business
Many accountants will discourage the purchase of a petrol or diesel car through a business as these types of vehicles are taxed very heavily. Electric cars, on the other hand, are much more tax efficient, and the entire cost of purchasing or leasing an electric vehicle can be claimed against your business. For example, a Tesla model 3 has a benefit-in-kind rate (BIK) of 2% and is 100% tax deductible, where as a c class Mercedes has a BIK rate of 30% and you’ll only be able to deduct 6% of the cost of the car against the business. This is to encourage the uptake of electric vehicles in the UK.
Top tip: It is possible to put petrol and diesel commercial vehicles through the business, such as transit vans and pick up trucks, and reclaim all the VAT on these purchases, as these vehicles are seen to be of economic benefit to the country. Commercial vehicles also benefit from a lower BIK rate and better benefits on claiming back fuel costs, however, it's advisable to speak to an accountant about your individual circumstances.
Staff Entertainment
Every good business wants to keep their employees happy, and fortunately HMRC are on your side when it comes to entertaining staff. Every company is given £150 per staff member and their partner per year as an entertaining allowance. This can either be spent all at once at a large Christmas party, or split through the year at two or three events, just as long as the cost stays within the £150 per staff member allowance.
Pension
Great news! Pension contributions are fully tax deductible and a great way of topping up your savings for the future.
Top tip: If you have any excess profits at the end of the year, consider reducing them down in order to pay less corporation tax by paying a little more into your pension.
If you’d like more hints and tips on how to be more tax efficient, watch the ‘Hot Topics in Financial Management’ webinars, and find savvy ways of putting money back into your business.
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The information contained in this article should not be relied upon as legal, business, or tax advice. We encourage you to seek guidance from your legal counsel, business or tax specialist with regard to how the information contained in this article may or may not apply specifically to your business.
