|Claiming expenses on products you review|
Uk tax question
My business is set up as a limited company. The trouble is my expenses are very low (around 10% of the revenue) which means I pay around 19% of my revenue as corporation tax.
I'm looking at ways to claim more expenses back. I'm currently claiming back the usual: hosting, home office expenses, accountancy fees, domain names, phone calls, my director's salary, coffees when I sit in starbucks with my laptop, etc but this is still low.
My accountant said that if you can sit down with the taxman and argue that a certain expense is for business, then you should claim it back. What I claim back now are without a doubt business expenses. I'm now thinking of trying to claim back as expenses things which could be seen as a gray area.
Take a Nintendo DS console and games. I'm wondering whether I can claim it (or part of its cost) as expense and, if asked, argue that I want to sell it as an affiliate but that I need to review/try it myself first. Has anyone done this? Claimed back cost of products/services that are intended to be reviewed and put up on your website?
My accountant also said that as long as the tax that I pay falls in the bracket the HMRC has for my industry (e.g. in which small web marketing businesses fall on average, I assume), then I should be fine. Trouble is, I have no idea what this bracket is :)
If you are reviewing products (which you purchase - not given as freebies) then absolutely they are a business expense.
It is what you do with it after that review. Do you sell it on, give it to a customer as a gift or keep it yourself?
Claiming items like this as a business expense is not a problem but you may find that your P11D and Self Assessment forms start to become more complicated if you start using business purchases personally.
As you are LTD and making a profit are you paying dividends? Can you take on an employee?
I don't want to take on an employee. I'm currently paying myself a minimum director's salary and taking the rest out as dividends making sure I don't take out too much so that I'm pushed in the higher income tax bracket.
If you keep the products you review, how does the taxman know that you are actually using them for personal purposes? For all they know, the item can just sit quietly in a drawer.
Also, does the review page need to earn something so that something like this qualifies as a business expense?
Your accountant said it quite well IMO. If you can sit with the taxman and explain to him in good faith the business purpose of expenses, he will accept them as such.
In many countries--don't know about yours--there is no need to make a direct profit of a specific expense. You could for example buy a Rolls Royce instead of the smallest Japanese car model, but as long as you can prove that the car is only used for business purposes there is no problem.
Your example of a Nintendo DS is a special situation. The taxman knows that this is the type of product which can and will be used often for non-business related activities so he may ask for more proof that it isn't used for private purposes. In that specific situation it would be better to sell it after the review for for example 80% of the price you paid to buy it, than letting it get dusty in a drawer. Selling it would be also better from a business perspective because it would loose its original value in a few years in your drawer.
I assume that you are talking about taking a deduction for expenses you already have, as opposed to finding new things to buy so you can claim as an expense? As such, I'm assuming the Nintendo is actually for personal use, so selling it after reviewing it isn't really going to be an option.
I'm in the U.S. and don't know how taxes work in the U.K., but I didn't see any meals/entertainment listed in the usual suspects you mentioned. For a web marketing business, I'm sure you're constantly meeting with potential clients to drum up new business, right? And Aunt Patty and Uncle Fred don't really need a web site, but there's no law saying you can't try to sell them one anyway while you're having dinner together.
As a 1-person shop, it might be a little hard to justify, but in the U.S., annual shareholder meetings are required, and quarterly, if not monthly directors' meetings are not outside the norm. The big guys rent out huge hotel ballrooms- there's no reason why you can't have yours at a fancy restaurant. Do you have any friends/family members you can bring on board for a nominal salary (or as additional directors)?
|I'm currently paying myself a minimum director's salary and taking the rest out as dividends making sure I don't take out too much so that I'm pushed in the higher income tax bracket. |
What's the tax rate for personal income? Have you and the accountant worked out the math for taking a higher salary?
Dividends would only save you the National Insurance tax (NI tax is roughly 11% and 12% for employees and employers) thus saving the business roughly 23%.
The personal income tax rates are 20% and 40% so you can see that it is advantageous to stay under the 40% bracket.
Some companies take on a partner or spouse and pay them a wage. Whilst HMRC have tried to clamp down on this if you can prove 100% the your partner / spouse is needed in the business then pay them a wage instead.
As for the Nintendo this would be like any hardware purchase. It's cost would be written down each year until it is worthless for the business and would be disposed.
The best thing to do would be use it in the business for as long as desired / is sensible and then sell it to yourself or a colleague for the going rate.
Its becoming harder to get away with paying yourself and spouse min wages. Why not lease a company vehicle for £500 per month or upgrade your IT infrastructure with a personal loan from your savings and then the company can pay you back each month - with market rate interest of course. Interst on savings is very low at the moment so this is a good opportunity
Make sure you claim fully for online suscriptions, conferences, training, personal mentoring, team building events etc all with full expenses only if you actually need them .
Pension contributions ? Property ? If you have kids I hear there is a way to pay for shool fees via your pension.
Tax avoidance is perfectly legal, but I wouldnt advise anything gray area, its no different from any other fraud/theft.
What abouut paying for a better accountant who knows all these?
but I didn't see any meals/entertainment listed in the usual suspects
This is an area that UK tax law became tough on decades ago.
I have found Inland Renenue (as it was then) very helpful when making direct queries. If in doubt, ask.
Do divert as much as possible into pension contributions.