10 ways to help with the cost-of-living

2nd November 2022

10 ways to help with the cost of living

The cost-of-living crisis is putting additional strain on businesses and households that are already feeling the aftereffects from the various challenges over the past few years. We have identified some areas below that could help reduce costs and potentially save you money.

  • Remuneration Planning – Are you paying yourself tax efficiently? For example, those that pay themselves at the employers NIC limit of £9,100, could see a benefit by increasing their salary to just under £12,000 for this tax year. Those paying more than £12,000 could consider reducing their salary and taking the balance by way of dividends.
  • Interest on Directors loan – Do you have a director’s loan account in your company? If your company owes you money, you could consider charging the company interest on the balance. In some circumstances, you could charge the company up to £6,000 of interest, which the company will get tax relief for, and you may personally receive tax free.
  • Super-deduction Capital Allowances – Is your company considering purchasing new equipment, but worried about the cost? It’s worth noting that purchases of new qualifying equipment will qualify for the 130% super-deduction. So, if you buy a piece of kit for £12,000 and you are VAT registered, in most circumstances, you will get the VAT back on the purchase and then receive tax relief on the Net purchase price of £10,000, but for tax purposes this will be grossed up to £13,000. The tax relief works out to £2,470 (nearly 25%). So, the net cost of the purchase is £7,530.
  • Go Electric – Do you have a company car? Are you fed up with the amount of car tax you have to pay on it? By considering going electric, you could reduce your company car tax liability significantly. A diesel company car with a list price of say £35,000 could result in annual personal income tax liability at the higher rate of tax of around £4,400 per annum. Switching to say a £50,000 electric car could reduce this tax to £400. In addition, the company could potentially claim 100% Annual Investment Allowance on the electric car (compared to potentially 6% on the Diesel car), plus reduce the annual Employers National Insurance cost on the company car from £1,600 on the diesel car to around £150 on the Electric car.
  • Family planning – Does your family support you in the business, but are not on the payroll? If your partner and children do work for you, you should consider putting them on the payroll. There can be both an Income Tax and National Insurance saving in doing so. Is your partner a shareholder in the business? If not, there could be additional tax savings available to consider.
  • Pension contributions – We all know that pensions are very tax efficient, but as we get closer to retirement age, the value of our pension funds become more important. It’s worth noting that if you make a company pension contribution, the company gets tax relief at 19%. In retirement, you are likely to receive 25% of that contribution tax free and the balance for most of us at the basic rate of tax circa 20%. This works out to be roughly a 15% tax rate on your pension. If you are a higher rate taxpayer, the savings can be from 40 or 45% down to the 15% tax rate. Those close to retirement age will feel this benefit far sooner.
  • R&D Tax credits – You may be doing something in your company that means you are eligible for R&D Tax credits. By simply phoning our R&D Taxperts, we can quickly assess if you are entitled to anything. This one phone call could be the best return per minute of your time.
  • Accounting software – If you are paying more than £20 per month for your accounting software, do you really need to? Our cloud accounting specialists can check your monthly accounting subscriptions to check if you are overpaying for what you use.
  • Long Service Awards - You can award staff including directors’ tax-free long service awards if they have worked more than 20 years. For example, say a director had worked for the company for 25 years, the other directors could purchase a gift up to the value of £1,250 (£50 per year of service). This could be something like a new set of golf clubs. The director receives them tax free, and the company will receive corporation tax relief. A £1250 set of golf clubs might only cost the business around £1,000. If you were aware that the director receiving the award was considering the purchase but in two minds about the cost, the long service award could be a nice cost-effective reward. Note that you can only present the award once every 10 years.
  • Small Gifts – You can provide your employees with a tax free ‘trivial’ benefit if all of the following apply. It cost £50 or less to provide, it isn’t cash or a cash voucher, it isn’t a reward for their work or performance, and it isn’t in their contract. There are no limits to the number of times you provide this gift to employees, but directors of close companies are restricted to £300 in a tax year (so 6 gifts). These gifts could potentially help employees with the cost of living.

This list is not exhaustive but highlights some of the ways we are supporting our clients as the cost-of-living increases.

If you would like to discuss further how we can support your business or personal needs, please contact our EQ specialists via [email protected] or call 01592 630055.

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