Decrease the Profit

[MikeBaco78]

Hi All!!

which is the best way to decrease the profit in order to be more tax efficient?

Below the best way I know:

• travel expenses
• miles
• general expenses
• software
• private pension
• Any other ideas??

You need to consider that I have also to pay a lot of VAT, I am not in to the flat rate scheme.

Is a good idea to buy a small office?

Thank you very much in advance.

[eek]

Salary Sacrifice into a pension

If really clever an electric car...

Beyond that anything else is an expense that needs valid justification and even then just reduces your profit.

anything you cannot 100% justify opens you up to attacks of tax avoidance - HMRC really don't like TVs and summer holidays appearing as expenses.

[Lance]

Salary is also an expense. Just not a very tax efficient one.
Home working expense of £28 a month.
Trivial benefit of £300 per year per director.
Annual staff party of £150 per attendee.
Relevant life plan (company funded life insurance). Talk to an IFA about that.
Health cover (will go on the P11d so has some personal tax implications)



Don't let the tax tail wag the dog though. The more expenses you incur to reduce tax is less profit for you.

Don't make the mistake of thinking that if you have a £20k CT bill you can pay £20k into your pension to wipe out that CT. It will only reduce it by £3,800, whilst reducing the money you can take as dividends by £16,200 (this shouldn't need to be pointed out but, alas, another poster recently posited this idea)

[ladymuck]

Most contractors aren't in the FRS any more, so that's not really something worth calling out for special consideration.

You could wipe out all of your profit by making up schemes to spend the company's money on but then you won't have anything left to pay yourself as a dividend (as Lance nicely illustrated). Swings and roundabouts...

[WTFH]

Most contractors aren't in the FRS any more, so that's not really something worth calling out for special consideration.

It's also worth noting that most businesses are not "paying VAT", but it is passed through. You agree a price with the customer of £1000. You charge a customer £1000 + VAT, they pay you £1000 + VAT, you pass that VAT on to HMRC.

[ladymuck]

It's also worth noting that most businesses are not "paying VAT", but it is passed through. You agree a price with the customer of £1000. You charge a customer £1000 + VAT, they pay you £1000 + VAT, you pass that VAT on to HMRC.

Yes, very true. I put the gross VAT from my invoices into a separate bank account to keep it entirely separate from funds that are available to myCo. Anyone who thinks the VAT they collect is their money is on a dangerous path...

[northernladuk]

Don't let the tax tail wag the dog though. The more expenses you incur to reduce tax is less profit for you.

Gotta emphasise this. Buying stuff just to reduce profit doesn't make sense. It's your money at the end of the day so when you buy stuff it's really just at a 20%ish discount and if it isn't of direct benefit to you personally then you are just wasting your money.

Your accountant should be doing a quarterly review of your accountants and they should be pointing out things you haven't spent on that most contractors do. Stuff like the use of home room etc. Get a call in with them if they aren't and have a top down review.

[NotAllThere]

Gotta emphasise this. Buying stuff just to reduce profit doesn't make sense.

Exactly. If you really want to reduce profit in a tax efficient way - earn less.

[lecyclist]

- Tax offsetting (allocating sales from good years against bad years, typically for those invoices crossing over year end).
- Transfer pricing (needs an entity in another tax jurisdiction and a proper understanding of anti-avoidance regulations in both jurisdictions).

[Lance]

- Tax offsetting (allocating sales from good years against bad years, typically for those invoices crossing over year end).

a.k.a. FRAUD. You can't just change the dates of sales to gain a tax advantage.
HTH