Tax deductible expenses

There is a great deal of confusion as to what you can and what you can’t deduct from your profit for tax purposes.

This tip gives a brief list of the types of expenditure you can claim, some of which you may already be deducting, some may be new to you and applicable to your business.

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Cut red tape … get a P11d dispensation

For those of you who are one-person limited companies and/or have employees, you may be aware that reimbursements of expenses (excluding mileage within approved rates) should be reported to the Inland Revenue on P9d or P11d and included within the claimant’s tax return. This can add quite a burden onto the company’s administration and also incur fines if returns are not completed correctly or submitted late.

However, there is an easy way to reduce this administrative burden – apply for an expense dispensation.

Depending upon the type of business, various business expenditure can be included within the dispensation and may remove the need to complete p9d/p11d for some employees (car, fuel, health insurance etc benefits must still be reported).
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A quick guide for your new limited company

Getting at your profits

Extracting your profits from your company can be by a mix of wage (ie under PAYE) and dividend. In order to pay a dividend the company must have sufficient after tax profits. ie for a £10k dividend to be paid the company must have approx £12.7k pre tax profits (corp tax rate of 21%).

Do not be tempted to withdraw more than is legally available as dividend, as it would be “illegal” and HMRC may class it as a salary or a loan to the director (taxable benefit in kind if over £5k) and charge tax & NIC.

For more on how to extract your profits in a tax efficient way, read our article “Save tax and National Insurance with your limited company”.

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