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If you are a limited company owner looking to reduce your tax liability and increase your take home pay, this article is for you. By following these tips, you can save money and maximise your profits.
Tax-Efficient Remuneration
If you are a limited company owner operating outside of IR35, you have more control and flexibility over your remuneration. By structuring your payments through a combination of salary and dividends, you can reduce your income tax and National Insurance contributions, resulting in more take home pay. Dividends are company profits distributed among shareholders, so if you are the only shareholder, the dividends are all yours!
It is important, however, not to withdraw all your company profits as dividends. Keeping some money in your business will provide flexibility in case your business faces a lean spell. Also, retaining funds in the business can help you to pay less tax as it could keep you in a lower tax band.
Give Gifts to Charity
Making donations to charity, such as money, shares, property, equipment or land, can reduce the amount of corporation tax you pay. The value of the donations is deducted from company profits before tax is applied. Donations can be made through personal contributions or Gift Aid. This tax relief is available to sole traders, partnerships and limited companies, but the rules are slightly different for limited companies.
Utilise the Flat Rate VAT Scheme
Many self-employed people operating outside IR35 use the Flat Rate VAT scheme to simplify the process of charging and reclaiming VAT. This scheme removes part of the administrative burden associated with being VAT registered. Through the flat rate scheme, a fixed rate of VAT is paid to HMRC and you keep the difference between what you charge your customers and what you pay HMRC. VAT can’t be reclaimed on purchases with the exception of specific capital assets over £2,000.
The flat rate VAT percentage you pay is dependent on the sector your business operates in and the cost of goods used. If you’re in your first year as a VAT-registered business, you will get a 1% discount. To be eligible for the scheme, your VAT taxable turnover must be less than £150k, your business cannot be closely associated with another business, and you cannot have been found guilty of a VAT offence, or paid a penalty for VAT evasion, within the last year.
Use Your ISA Allowance
You can use an ISA to reduce your tax bill . Each year you can put up to £20,000 into it. This could be all in one ISA or split between a cash ISA, stocks & shares ISA, innovative finance ISA or a lifetime ISA. If you earn interest from a cash ISA it’s not subject to income tax, so it is tax-free. You also don’t have to pay tax on any dividends received or capital gains realised from shares held in a stocks & shares ISA.
Make Contributions To Your Pension
Pension contributions are an allowable expense that can lower the amount of corporation tax you pay. As a limited company owner, you can make contributions to your pension to trim the amount of tax you pay. This will enable you to lower your corporation tax liability and increase your take home pay.
Work with an accountant that’s right for you
Looking for more ways to pay less tax? Working with an accountant is a smart move.
At The Accounting Studio, we specialize in accounting for small businesses and the self-employed. Our expert accountants can help you reduce your tax liability and handle all the necessary documentation for HMRC. We know how to maximize your profits so that you’re only paying the amount of tax you should be paying to HMRC, and not a penny more.
Our transparent fixed-fee pricing structure ensures that there are no unpleasant surprises. You’ll have your own dedicated accountant, full access to the market-leading FreeAgent accounting software, and a same-day response to any query submitted on a working day before 3pm.
By paying a monthly fee, you’ll gain access to our expertise and get the best advice on how to leverage all available tax efficiencies, ultimately increasing your take-home pay. Plus, you’ll save a ton of time by not having to handle your accounts and record-keeping yourself. Instead, you can focus on growing your business.
Remember, working with The Accounting Studio means having an expert in your corner, helping you to keep more of what you earn and grow your business.
Conclusion
Incorporating your business can bring many benefits, including limited liability, credibility, and the ability to claim a wider range of expenses. To maximise your take home pay, consider structuring your remuneration through a combination of salary and dividends, making donations to charity, using the Flat Rate VAT scheme, taking advantage of your ISA allowance, and making contributions to your pension. By following these tips, you can reduce your tax liability and increase your profits. At The Accounting Studio, we are always ready to help.
