Minimise company and personal tax

[deva link]

I'm one of 3 owner/directors of a small limited company. I hear a lot of people say they buy all sorts of things through their companies, so they're effectively avoiding company corporation tax and personal tax. I'm thinking of things like holidays (shown as travel), golf club membership (hospitality), new plasma TV (demo equip) etc etc. I went to a barbecue at a friends house in the summer and he reckoned he'd bought the (very flash) barbecue and all the patio furniture through his company.

Our accountant is horrified at such suggestions. Is he a bit too straight-laced?

[Leftie]

I am sure Eric Mc will be along with his "wholly for business purposes" and "illegal" advice shortly, but frankly I don't mess with HMRC in such a way. I may lend the company Dyson when the living room carpet needs a deep clean or have an occasional cup of their delicious coffee when visitors are not here, but beyond that I think the watch word is; 'don't mess with them'.

We have the offices attached to the house so the temptation to buy a plasma TV that migrates for Film 4 evenings is great but too risky IMHO. I think golf club membership would be a BiK.

[Leftie]

Leftie said:

I am sure Eric Mc will be along with his "wholly for business purposes" and "illegal" advice shortly, but frankly I don't mess with HMRC in such a way. I may lend the company Dyson when the living room carpet needs a deep clean or have an occasional cup of their delicious coffee when visitors are not here, but beyond that I think the watch word is; 'don't mess with them'.

We have the offices attached to the house so the temptation to buy a plasma TV that migrates for Film 4 evenings is great but too risky IMHO. I think golf club membership would be a BiK.

We had a similar debate on travel s hort time ago when I was trying to travel to a conference, and stay a few days on holiday. It is here on the business forum somewhere www.pistonheads.com/gassing/topic.asp?h=0&f=92&t=328270&p=1

[Eric Mc]

No, he is being honest - to you.

There are no laws preventing a limited company buying such things.

However, it can only get a reduction in its Corporation Tax liability if the items purchased were wholly and exclusively for the purpose of its trade.If they weren't for the purpose of the trade, then the costs will not be tax deductable and will need to be "Added Back" in the tax computations.

Entertainment Costs, even those which were genuinely "wholly and exclusively for the purpose of the trade" are specifically not allowable fort tax purposes.

If any of these "costs" were actually for the benefit of the directors/employees or connected persons, then there will also be an Income Tax Benefit in Kind charge arising on the personal element of these costs.

It is the directors' resonsibility to disclose such transactions and their values - either as pecific notes to the annual satutory acoounts and/or in the form P11d "Return of Benefits in Kind" at the end of the relevant tax year.

There are fines and penalties for failure to disclose.

Leftie - I'm predictable if nothing else

Edited by Eric Mc on Monday 27th November 13:57

[smirnoff]

So if these are added back and charged at 19% corp tax and a benefit in kind tax surely it is still better than a 40% income tax if you pay yourself first, or 25% if done as a dividend?

Or am I missing something?

[Don]

Is he being too straight-laced?

Absolutely not. If you can't convince your Accountant and Auditor that the costs and expenses you are putting through your business aren't legit - you will have no chance with a Revenue audit.

Do NOT feck with the Revenue.

[Eric Mc]

You will pay Income Tax on Benefit in Kind amounts at your TOP rate of Income Tax, 40% if appropriate. You won't be charged Employee's National Insurance but most (not all) BIKs are chargeable to Employer's NI.

[granville]

You will bent over and screwed whatever you do so my advice is have a good time, all the time.

[smirnoff]

Eric Mc said:

You will pay Income Tax on Benefit in Kind amounts at your TOP rate of Income Tax, 40% if appropriate. You won't be charged Employee's National Insurance but most (not all) BIKs are chargeable to Employer's NI.

So paying a divedend at higher rate works out the best route then?

Adrian

[Eric Mc]

Usually.

However, don't forget that the downside of paying a dividend is that the company gets no tax relief on the "expense" (unlike salaries).

Edited by Eric Mc on Monday 27th November 17:59

[2 sMoKiN bArReLs]

Pensions.

[smirnoff]

2 sMoKiN bArReLs said:

Pensions.

Don't swear!

[smirnoff]

Eric Mc said:

Usually.

However, don't forget that the downside of paying a dividend is that the company gets no tax relief on the "expense" (unlike slaries).

That works once you hit higher rate corp tax!

[2 sMoKiN bArReLs]

smirnoff said:

2 sMoKiN bArReLs said:

Pensions.

Don't swear!

That's an anagram of son penis

[Leftie]

Eric Mc said:

No, he is being honest - to you.

There are no laws preventing a limited company buying such things.

However, it can only get a reduction in its Corporation Tax liability if the items purchased were wholly and exclusively for the purpose of its trade.If they weren't for the purpose of the trade, then the costs will not be tax deductable and will need to be "Added Back" in the tax computations.

Entertainment Costs, even those which were genuinely "wholly and exclusively for the purpose of the trade" are specifically not allowable fort tax purposes.

If any of these "costs" were actually for the benefit of the directors/employees or connected persons, then there will also be an Income Tax Benefit in Kind charge arising on the personal element of these costs.

It is the directors' resonsibility to disclose such transactions and their values - either as pecific notes to the annual satutory acoounts and/or in the form P11d "Return of Benefits in Kind" at the end of the relevant tax year.

There are fines and penalties for failure to disclose.

Leftie - I'm predictable if nothing else

Edited by Eric Mc on Monday 27th November 13:57

Eric Mc: The voice of reason and 'keep you out of the pooh'

[BigAlinEmbra]

Eric Mc said:

Leftie - I'm always right, and my clients don't end up getting fined or in jail

Edited by Eric Mc on Monday 27th November 13:57

Just thought the value of your advice was needing emphasised a bit there Eric.

[Eric Mc]

I would never make such a claim .

[deva link]

Eric Mc said:

Entertainment Costs, even those which were genuinely "wholly and exclusively for the purpose of the trade" are specifically not allowable fort tax purposes.

Thanks for the other comments.

Am I right in thinking that entertaining foreign visitors is allowable?

More generally, I guess we'll just have to stop scrimping on travel and go first class in future - that should get rid of some hefty chunks of money.

[2 sMoKiN bArReLs]

deva link said:

Am I right in thinking that entertaining foreign visitors is allowable?

..only if you can travel back to the late seventies

[deva link]

2 sMoKiN bArReLs said:

deva link said:

Am I right in thinking that entertaining foreign visitors is allowable?

..only if you can travel back to the late seventies

Funny how I can recall stuff from then, but can't remember what I had for lunch today.