- Monday, 04 August 2014 13:13
Graeme Bennett of contractor accountants Forbes Young explains the tax effects of equipment and training costs to the one person owner/director/worker limited company.
Firstly the tax effect is that if the corporation tax rate is 20% (as it is currently) then the actual net cost to the company is 80% of what is paid for the equipment.
Say the equipment/training is £1,000 and you choose not to spend the money, then your company will have £1,000 additional profit so pay £200 corporation tax.
If you then take what is left as dividends additional to £30,518 net already taken in this tax year and take £7,956 salary (i.e. which totals the £41,865 gross higher rate tax threshold), you will pay income tax on those £800 dividends of 25% i.e. £200.
Therefore in summary not to spend £1,000 on equipment/training but instead to take as a dividend will normally lead to a £400 tax bill for a higher rate taxpayer. The real cost of £1,000 expenditure here then, will be net £600.
In addition, the more your company spends on equipment and training, the stronger your IR35 position will be.