expense - reduce tax ?

[psychocandy]

I also find it hard to believe that people think that spending loads on expenses is somehow a great way to earn more money and pay less tax. Yes, if you earn £100K and manage to find something to spend all of it on (might be difficult to justify) then congratulations you'll pay zero tax all year but you wont have any income either (apart from some nice toys maybe!)

You need to think of it as a 20% discount off something you buy. And then only allowable if its for a business use.

For instance, if you think you can justify a new PC for home then fair enough. But, in effect, your only getting a 20% discount by not paying CT on the money.

E.g. £500 paid as dividend = £400 (or so because its not quite like this is it with the tax credit?) in your pocket.

Or £500 PC, no tax, no money in your pocket but a £500 PC.

[northernladuk]

I think you mean PAYG - PAYE will have people screaming at you and calling you a permie

A good rule of thumb is to think if I have the tax man sat next to me and ask why has the company bought such and such an asset, could I justify that it was for the business and that the business needed it. If it was say a camcorder, could you then produce business films and pictures taken using it or just family outing videos?

You have to remember though HMIT man will have seen it all. He won't be a push over, it's his job. If HMIT are anything like Quality Auditors then I think many of us are under estimating them. They get one sniff of something fish and no amount of squealing is going to work I reckon.

[BA to the Stars]

are PAYE phones and camcorder considered by HMRC for business purpose (ofcourse it can be used for personal use also but in this case the phone would be needed for my wife to answere calls? and the camcorder is for taking photos and videos)

I think you mean PAYG - PAYE will have people screaming at you and calling you a permie

A good rule of thumb is to think if I have the tax man sat next to me and ask why has the company bought such and such an asset, could I justify that it was for the business and that the business needed it. If it was say a camcorder, could you then produce business films and pictures taken using it or just family outing videos?

[malvolio]

Thanks for being polite but would you be able to give me some help on the basics as i have been reading 100 of websites and now totally confused. and can i ask you what part of my question made you think i did not know the basics but again i am being polite as well if i am missing something can you please explain me this ?

I just did. Ignore the 100s of websites, read the four I suggested, which have been created by people who fully understand the rules and the business of freelance contracting.

But the absolute basic algorithm is:

(total invoice value) + ( VAT saving if on FRS) - (net salary paid + PAYE/NICs) - (business expenses) - (Corp Tax)- (commitments) = (Net profit) = available dividends.

You will of course have noted that salary and business expenses are not in the same box. Why?

You ignore VAT if not on FRS. Why?

What are "commitments"?

When you can answer those questions, you will have made a start

[Waldorf]

These may help -

Brochures & Guides - Nixon Williams

Business Start Up Factsheets - Nixon Williams

Online Calculators - Nixon Williams

[LisaContractorUmbrella]

Thanks NW. i thought of the same as well. People think if you claim expenses or spend more then you take home more which is incorrect because the savings is just 20% and do not spend unless you need to. (for example a friend mine brought a computer which he could have lived wihtout it also. he just brought it thinking his take home will be more which is wrong because he has spent 80% on something he did not necessarily need !!) Also to note if it is a single director then having expense would be ok because instead of paying too much tax (either as salary or dividends) you can atleast buy things and live in luxary. but i suppose if you have two directors then you can spilit the income ? (personally i would think if you are a single director, increase the salary so that you pay tax but not a lot and then take rest as dividends ?) - am i correct ?

are PAYE phones and camcorder considered by HMRC for business purpose (ofcourse it can be used for personal use also but in this case the phone would be needed for my wife to answere calls? and the camcorder is for taking photos and videos)

As Mal says - some research and a good accountant would be a good idea. With regard to expenses, you need to remember that any purchase has to be wholly and exclusively for the business in order to be an allowable expense.

[network]

Thanks for being polite but would you be able to give me some help on the basics as i have been reading 100 of websites and now totally confused. and can i ask you what part of my question made you think i did not know the basics but again i am being polite as well if i am missing something can you please explain me this ?

[malvolio]

Thanks NW. i thought of the same as well. People think if you claim expenses or spend more then you take home more which is incorrect because the savings is just 20% and do not spend unless you need to. (for example a friend mine brought a computer which he could have lived wihtout it also. he just brought it thinking his take home will be more which is wrong because he has spent 80% on something he did not necessarily need !!) Also to note if it is a single director then having expense would be ok because instead of paying too much tax (either as salary or dividends) you can atleast buy things and live in luxary. but i suppose if you have two directors then you can spilit the income ? (personally i would think if you are a single director, increase the salary so that you pay tax but not a lot and then take rest as dividends ?) - am i correct ?

are PAYE phones and camcorder considered by HMRC for business purpose (ofcourse it can be used for personal use also but in this case the phone would be needed for my wife to answere calls? and the camcorder is for taking photos and videos)

I think before you ask any more obvious* questions, a little reading wouldn't go amiss? There's a guide over there --->, an even more comprehensive one at www.pcg.org.uk and good introductions to the financial side at both Nixon Williams and SJD's websites. This is not a game, you can get into real problems by getting the basics wrong.



* I'm being deliberately polite, incidentally, so as not to uspet the mods. there is a more appropriate adjective...

[network]

Thanks NW. i thought of the same as well. People think if you claim expenses or spend more then you take home more which is incorrect because the savings is just 20% and do not spend unless you need to. (for example a friend mine brought a computer which he could have lived wihtout it also. he just brought it thinking his take home will be more which is wrong because he has spent 80% on something he did not necessarily need !!) Also to note if it is a single director then having expense would be ok because instead of paying too much tax (either as salary or dividends) you can atleast buy things and live in luxary. but i suppose if you have two directors then you can spilit the income ? (personally i would think if you are a single director, increase the salary so that you pay tax but not a lot and then take rest as dividends ?) - am i correct ?

are PAYE phones and camcorder considered by HMRC for business purpose (ofcourse it can be used for personal use also but in this case the phone would be needed for my wife to answere calls? and the camcorder is for taking photos and videos)

[northernladuk]

Hi

I have started a limited company and just wondering Does expenses reduce tax. I have seen people claiming for many things (business purpose) but by doing so arent you reducing take home pay ? Because if you dont claim then yes i agree you pay tax but you pay only 20 % corp tax and save 80% whereas if you claim then you dont even get that 80% isnt it or am i missing something here ?

A very fundamental grasp on running your business accounts for which you are legally responsible per chance?

[jamesbrown]

Wouldn't that be great if HMRC would buy all your office equipment for you? Not sure I'd trust the computer though....

Yes, as NW mentioned, the "saving" is on the corporation tax that would've been payable had the expense not been incurred, nothing more.

[Nixon Williams]

Assuming that the expenses are incurred for business use etc, then yes, the expenses will reduce the amount of corporation tax that will be payable.

As you quote, the 'saving' is in effect 20% of the cost, so it is only worth spending the money if it is something you need for the business etc.

Most items claimed cover mileage, hotels etc, smaller sums will cover things such as mobile phones, stationery etc.

It is worth claiming but only if it is something you absolutely need, and remember that the saving is in effect 20% not 100% as some may think.

Alan

[network]

Hi

I have started a limited company and just wondering Does expenses reduce tax. I have seen people claiming for many things (business purpose) but by doing so arent you reducing take home pay ? Because if you dont claim then yes i agree you pay tax but you pay only 20 % corp tax and save 80% whereas if you claim then you dont even get that 80% isnt it or am i missing something here ?