Whether we like it or not, tax is an essential part of every business, but it is one that many business owners and managers often know very little about. Because of this, many myths and misconceptions about tax within the UK can often be deemed fact instead of fiction.
Well, the Ellis & Co. team are here to debunk some of the most common tax myths out there…
Contributing to a pension as a business owner isn’t worth it
Not true! Not only will contributing to a company pension ensure you building up vital funds for your retirement, but it can also mean you pay less corporation tax in the long run if you find yourself with a significant amount of excess cash.
Each year you are able to pay £40,000 into a pension fund; however, if you have not done this previously, you are able to go back a total of three years. This means that you could be adding £160,000 into a pension pot. However, it is vital that this is evidently paid into a pension scheme for it to be qualify for corporation tax relief.
Research and development tax credits won’t apply to my business
Not necessarily! When talking about R&D Tax Relief, many business owners picture white coats and those working in a science or engineering field. However, this is not always the case and in fact, many business owners could be eligible to claim R&D.
Of course, you will need an expert on hand to help you to identify whether you are able to claim this Tax Relief. Find out more about Research and Development, and how the Ellis & Co. team can help, here.
Salary and dividends are the same thing
They aren’t! Every business owner will want to look for the most tax-efficient way to earn an income. More often than not, this will form a combination of salary, dividends and pension contributions.
Many company directors opt to take the majority of their income in the form of dividends (a share of the company’s profits), which in turn reduces the amount of income tax and isn’t liable for NICs. Of course, if a company is not currently profitable then they will be unable to take income in this way. However, it is also wise to take a small salary from the business, as this will build qualifying years towards a state pension, allow you to retain certain benefits such as maternity and makes applying for mortgages and other insurance policies much simpler.
Your Chartered Accountant will ultimately be the best source of guidance on the most tax-efficient way to receive your income as a business owner.
HMRC will be lenient if I don’t understand tax fully
Absolutely not! Claiming ignorance as an excuse for making a mistake or missing crucial tax deadlines will not suffice for HMRC. They expect each individual or business to keep necessary records that will allow for a timely and accurate tax return. If you do not know about tax, now is the time to give your knowledge a boost!
Want to know more about how you can maximise your business’ tax efficiency? Speak to the team here at Ellis & Co. today on 01244 343 504.