Paul Webb, partner at smaller business tax specialist Robert James Partnership, explains how to make the most your tax brief
1. Everyone benefits
One of the easiest ways to save money is by taking advantage of the “benefit in kind” rules. For instance, if you have staff with company cars due for renewal, advising them to select a model with lower carbon emissions will save you both money in the long run. As a business owner, you can claim 100 per cent first-year allowances for cars with a rating of less than 110g/km, while the employee’s tax bills are lower because the car is less polluting.
2. Salary sacrifice schemes
Another win-win area is “salary sacrifice”. This means the employee agrees to a lower salary in return for a benefit which is fully tax deductible, such as childcare vouchers or pension contributions. Salary sacrifice is a good tax-saving option but must be implemented with the prior approval of HMRC.
3. Share options
Offering your staff share options as an incentive is also very tax efficient under the Enterprise Management Incentive (EMI) scheme. During periods when you are not in a position to offer cash-based incentives, shares represent a good motivator, which also help develop increased employee commitment for the longer term. Two caveats: following the last Budget, only companies with fewer than 250 employees can take advantage of EMI; and the scheme needs to be carefully structured to ensure the best tax position for an eventual exit.
4. Transfer assets to maximise personal allowances
Make sure you fully utilise any available exemptions and personal allowances. Married couples and civil partners are still able to transfer assets between them to reduce their tax liabilities, following the chancellor’s retraction of his previous threat to crack down on this practice.
5. Maximise capital allowances
You can claim enhanced capital allowances (i.e. write off 100 per cent of costs in year one) for “green equipment” investments such as energy and water-conserving facilities, or equipment for research and development (R&D). There’s also a new annual investment allowance for up to £50,000 of expenditure per year.
Related: How can I reduce my company tax bill?
6. Rent a room and get £4,000 tax relief
It is possible to claim relief against any income you receive if you let a room in your house. The amount of relief claimable is £4,250 and while letting out a room in your home is not always an attractive option, it does represent a significant tax-free income. It is also well worth ensuring that you and your spouse take full advantage of the £7,200 annual ISA allowances, both for savings and other investments.
7. Don’t pay rates on empty property
Returning to the issue of property, it is now also possible to claim a temporary exemption for business rates if you own property with an annual rental value of £15,000 or lower. This change was introduced in the recent Pre-Budget Report and will be applicable from April 2009 for 12 months.
8. Ask the tax man for more time
Finally, if you’re struggling to pay your tax bills, HMRC is committed to giving small firms as much leeway and flexibility as they need. Make the Revenue aware of the potential problem as soon as possible.
