When it comes to tax planning, finding deductions in hidden corners is an important step in building wealth. Taxes eat up 35% or more of many people’s paychecks, and without taking professional advice from a chartered accountant, you could easily pay HMRC much more than you owe.
Some tax breaks target a small group, such as startups and tech companies, but there are a few that most businesses can take advantage of. Here is our list of hidden tax write offs that can save you money this year:
Hidden tax write-offs for contractors and freelancers in the UK
Trade Industry Membership Fees
If you belong to a trade organization in your industry, you can deduct the fees. You have to prove that it’s an “ordinary and necessary” expense, for the deduction to be valid. For example, if you’re an accountant, ICAEW fees will qualify.
Renting a house near the workplace
As an independent contractor, you can claim almost all expenses for renting a flat or house near the workplace. You can do essentially anything you want with your rented flat or house near the client workplace, as long as you keep your primary residence.
Staying overnight on business with friends and family
Even if you stay overnight with friends and family whilst on business, you can still claim the expenses. What’s more, your family and friends can also benefit from this tax break.
Travelling to work as a passenger
If you are travelling to work as a passenger in a car you are entitled to claim 5p per mile.
iPads, Tablets and other gadgets you use for business
Think broadly about what you own that could be brought into your business — iPads, Tablets, digital cameras, video cameras and home office furnishings may qualify for a tax write-off.
Hidden tax write-offs for businesses in the UK
Claim research and development (‘R&D’) tax credits
If you are spending a chunk of money on innovation, you may be eligible to claim for R&D tax relief. The definition of R&D is wider than most companies realise and it’s open to most sectors including retail, IT, media, transport, manufacturing, – not just science and tech companies. Taking advantage of this tax break can result in deductible expenses of up to 225% of R&D costs incurred.
Decorating your office
The scope exists for some substantial deductions to be claimed for the cost of decorating your business premises. This may include items such as paintings and antiques which you use to decorate areas which will be seen by clients and the general public. You will need to make a business case for these expenses, and larger items will only attract relief under the capital allowances system, but this is still worth looking into.
Invest in equipment, vehicles or assets before 2016 kicks in
HMRC’s Annual Investment Allowance currently enables you to write off up to £500,000 of investments in “Plant and Machinery”. If you spend the £300k on commercial vehicles and new premises, and your business takes profits of £1 million, you would only pay Corporation Tax on £ 700k. From January 2016, HMRC is cutting the Annual Investment Allowance back from £500k to just £25k. If you’re planning on buying assets for your business, make sure it’s before 2016.
Celebrating at Christmas time
You will be able to write off the cost of staff parties and any other form of staff entertainment, as long as the annual cost of staff functions is kept under £150 a head.
Employee share options and awards
If you wish to incentivise your staff using share options or share schemes, corporation tax relief may be available to you.
Tax write offs for video game companies that create “culturally British” games
Tech companies who develop video games may be eligible for tax relief. Points are awarded for the amount of development carried out in the UK, the fact that certain job roles are carried out by UK staff and whether at least half the game’s overall team are from the UK.
Pay HMRC early
If you stay diligent and are able to pay your Corporation Tax bill early, HMRC will give you some of it back in the form of interest.
Hidden tax write-offs for individuals in the UK
Give your spouse £1,060 of your personal allowance
A great tax break, which came into effect this month (April 2015), is that married couples are now able to transfer up to £1,500 of unused personal allowance to their spouse. This hidden tax break could diminish your tax bill by £210.
Trust your spouse with your savings
For married couples and civil partners, an effective way to save tax is to move savings into the name of the one who pays the lower tax rate. You would save 20p for every £1 interest.
Renting a room or space on your property
If you have chosen to take in lodgers to bring in an income, you could earn up to £4,250 in any tax year and be exempt from income tax. Private landlords can claim for mortgage interest, and wear and tear on the property too.
Top up your pension
If you pay more into your pension, you’ll end up paying less tax. If you have an occupational pension, your employer will deduct your pension payments from your pay before working out your tax. For example, if you earn £40k a year and pay an extra £1k a year into your pension, then only £39k will be regarded as ‘taxable pay’. The result is that you pay £200 a year less tax. It’s even better if you pay higher rate tax. Someone who earned £45,000 a year and paid £1,000 a year into their pension would pay £400 a year less tax. Effectively, a £1,000 pension contribution has cost just £600.
Consider your expenses, and be imaginative. Almost anything which you can demonstrate has been purchased for business purposes will qualify for some sort of deduction. Again, every business and tax situation is unique, so be sure to consult our chartered accountants. They will help ensure you are taking advantage of any tax benefits that apply to your situation. To arrange this, send us an email to set up an online meeting at your convenience.