8 Contractor Tax Planning Tips
Life as a contractor can at times be challenging, to make things that little bit easier we’ve put together some tax tips of how to operate tax efficiently through your Limited Company.
Here they are:
Alleviate any National Insurance contributions
One major advantage of operating through a Limited Company is the opportunity to alleviate any NI costs. This is made possible by taking a low salary from your company and then taking the rest of your income as dividends.
Claim tax relief on all expenses
You’ll receive 20% corporation tax relief on all allowance expenses as well as not having to fund such expenses out of your own pocket. Don’t forget to claim for all allowable expenses, for example mileage costs, accommodation costs and any other expenses that are wholly and exclusively for the business.
Stay informed of your company’s tax position
Once you have taken your salary and your expenses, you are then able to determine how much profit your company has made at any point in time. You will need to take in to account VAT and corporation tax as all the funds in the company account are not yours to take. You will then know your company’s profit after tax, which is yours to take as a dividend.
Knowing what dividends you can take
You don’t need to take all the company’s profits as dividends as this is not necessarily tax efficient. Take what you need, but beware of reaching the higher rate of tax as you will end up with a personal tax liability.
Register for the Flat Rate Scheme for VAT
By being on the flat rate scheme for VAT you are able to make thousands in additional income! If your company turns over less than £150,000, you provide a service and incur very little expenses that include VAT then you should register right away.
Purchase a company mobile phone
HMRC will allow you as an employer to provide your employees with a mobile phone as a tax free benefit. This can be used for both personal and business use, you will receive Corporation Tax relief on this expense and there are no personal tax implications.
Throw a staff party
Did you know that each year HMRC will allow you to pay for a staff party! Up to £150 per employee is allowable and again you will receive Corporation Tax relief. It can be at any time of the year, not just Christmas. So let your Limited Company pay for your staff party, it’s a no brainer!
Consider financial products
Often contractors think that by becoming self-employed they will lose benefits that come with full time employment, such as health care and a pension. This need not be the case, being the Director of a company, you can set these up for yourself and receive corporation tax relief on them.
So, there you have it, 8 top tips for contractors who operate through a Limited Company. If you’re new to contracting or a veteran, we hope this will help.
Whatever your tax or VAT question, the Rhino qualified tax consultants will be able to help you. The Rhino consultants are ex HMRC and so will be able to give you in-depth tax advice on tax issues that affect tradespeople, such as HMRC tax investigations, VAT registrations, exemptions, IR35 questions and more.
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