Making the Most of Your Limited Company: Perks and Tax Efficiency for Solopreneurs and Small Businesses
Running a limited company, whether as a freelancer, solopreneur, or with a small family team, offers flexibility and tax advantages. Here's how you can optimise your finances:
Balancing Salary and Dividends:
Dividends and Salary: Once you've covered your National Insurance requirements with a salary, remaining profits can be withdrawn as dividends. Dividends are often taxed at lower rates than salary income, so this strategy can improve your take-home pay.
Building Your Nest Egg:
Pension Power: The company can contribute to your pension plan, reducing your company's taxable profits while boosting your retirement savings. This is a tax-efficient way to access company funds.
Perks with a Purpose:
Small Treats: The company can offer you small benefits like birthday gifts up to £300 per year tax-free, as long as each benefit stays below £50.
Professional Edge: The company can cover the costs of relevant professional subscriptions and training, keeping your skills sharp without personal tax implications.
Considering Electric Cars:
Go Green, Save Green: Choosing a company car with low CO2 emissions, like a fully electric vehicle (EV), reduces your Benefit-in-Kind tax. Additionally, you can claim back a portion of the VAT (Value Added Tax) paid on the purchase or lease of the electric car, further reducing the overall cost.
Additional Options:
Medical Insurance: Offering health insurance to all employees, including yourself, can be a tax-free benefit. Most health insurance policies include an annual health check and preventative measures like flu jabs.
Life Assurance: Explore a 'group life scheme' to get life assurance coverage for yourself and employees, tax-free.
Directors' Loans: While possible, directors' loans require careful management to avoid tax implications. It's best to consult an accountant for this.
Staying Organised:
Receipt Power: Always keep receipts for any expenses claimed through the company. This is crucial for a smooth tax calculation.
Detailed Logs: For minor expenses without receipts, maintain a detailed log explaining the expense and its business purpose.
The Takeaway:
By utilising these strategies, you can significantly improve your financial well-being as a director of a limited company. Remember, following HMRC guidelines and keeping proper records is essential to avoid any tax headaches down the line. Consider consulting an accountant for personalised advice on maximising your company's tax efficiency.