Today's topic is focused on one underused legitimate way of Saving tax with company benefits. Pay yourself and save personal and company tax. And yes, it's important as a business owner, you need to pay yourself. The conventional route to pay yourself is a blend of salary and dividends.  In this episode I'm going to be looking at a legitimate area of tax planning that tends to be underused.

The mission of the show is for you to get better acquainted with your numbers like your numbers more so you can improve your money mindset, make money, save time, and enjoy doing what you're doing.

You as a business owner will want to serve your customers well. You want to make money in your business, and you want to pay as little tax, legally, as you can.

Paying yourself with benefits

Tax-free benefits, yes, there are still some. Most employee benefits have an extra tax cost to your company and the employee.  However, there are still tax-free benefits. What’s not to like

When we talk employees, this can include yourself

Listen to find out more

Business structure

If you run your business as a sole trader as a self-employed individual, then benefits don’t apply to you as the owner, it will apply to people you employ. Your company is a separate legal entity from you as the owner. Your company pays tax on profits, tax on salaries, and your employees pay tax on earnings.   Earnings include benefits.

This may be an influencing factor for you deciding whether you should run your business as a limited company. Check out previous podcast episodes on your business structure and tax in your self-employed business.

Tax free and trivial benefits

Firstly. If a cost is 100 per cent business, it’s normally a tax saving. There are things your business can pay for that aren’t business related but have a personal use.

The good news is that some benefits can be provided tax free. Done correctly, you can give gifts to you and your team and no tax to pay! Please welcome trivial benefits.

Listen to learn more

Tax on taxable benefits

Tax free and trivial benefits have no tax consequence, for either your business or your employee. Your employee can include you

Many benefits, such as company cars, and medical insurance means that tax is due by you and your employee. However, it can still work out cheaper for your business to provide those benefits.

Listen to learn more

Conclusion

In conclusion, providing benefits is a great way to pay you ad your staff, save tax, and all perfectly legally. Saving tax with company benefits for your business and staff is a positive move. Paying yourself via benefits route as well as cash is good tax planning

Your business needs to grow, serve and make money. How to pay you and your staff efficiently plays a vital part in you taking decisions, and what is right for your business.  Contact us to find out more.

 What Next

Make yourself comfortable. Sit back and listen.

Even better subscribe so you do not miss an episode.

In This Episode

• Understanding what benefits are
• Appreciate what the tax free and trivial benefits are
• Decision making and dealing with a benefit strategy
• Developing your own Numbers confidence and decisions
• Take more control of your numbers to help make you money, survive and thrive

Links

https://podcasts.apple.com/podcast/proactiveresolutionss-podcast/id1500471288

https://play.google.com/music/m/I3pvpztpjvjw6yrw2kctmtyckam?t=I_Hate_Numbers

https://open.spotify.com/show/5lKjqgbYaxnIAoTeK0zins

https://www.stitcher.com/podcast/proactiveresolutionss-podcast

https://tunein.com/podcasts/Business–Economics-Podcasts/I-Hate-Numbers-p1298505/

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Hi, folks, and welcome to episode 35 of I Hate Numbers. The mission of the show is for you to get better acquainted with your numbers, like your numbers more, so you can improve your money mindset, make money, save time, and enjoy doing what you're doing. You as a business owner will want to serve your customers well,

you want to make money in your business, and you want to pay as little tax legally as you can. Today's topic is focusing on ways to pay yourself, and yes, it's important as a business owner, you need to pay yourself. In this episode of I Hate Numbers, I'm going to be looking at a legitimate area of tax planning that tends to be underused and that's in the area of providing benefits to yourself.

In this podcast episode of I Hate Numbers, I'm going to look at what benefits are tax-free benefits - yep, there are still some - what business housekeeping you have to undertake. I'll throw in some numbers to illustrate the point. Check out the show notes link to this broadcast, then you'll see those numbers in black and white, so you won't have to rely on your memory. If you run your business as a sole trader, as a self-employed individual, then what I'm going to be talking about will not apply to your situation.

It may be an influencing factor for you deciding whether you should run your business as a limited company. Check out previous podcast episodes of I Hate Numbers, episodes 14 on your business structure, and episodes 15 on tax and your self-employed business to get a bit more insight. Look more closely as to what we mean by a company benefit. A company will be paying for a variety of costs.

So, you'll be paying for office rent. You'll be paying for utility bills. You'll be paying for the goods and services that it's selling on, paying your wages, paying the wages of your staff, paying supplier bills, paying for the cost of the office phone line, a whole variety of costs and outgoings. No problem there.

All those costs are business related, and the company will be able to claim those costs in full against its tax bill. However, there will be certain items the company will pay for that actually confer a personal benefit. So, let's think, typically what most of us carry around with us, and that's your mobile phone.

Now, your mobile phone. You will make personal calls, no doubt, to your family, your friends, and you’ll use that mobile phone to make business calls. Now, if the company pays the bill, potentially there's a benefit there because what it's paying for is not just company expenditure, but also paying for some of your personal costs. Requiries in the arena of medical insurance.

Medical insurance protects you as an individual. If the company's paying that bill, then there is a personal benefit that is created. Now, some good news here. There are quite a variety of benefits still that can be provided tax-free. We're going to have a look at what those are in a few moments, and we are going to make sure that we get the compliance aspect done correctly.

Otherwise, we're in hot water with our friends at HMRC. As an introduction, as an overview, if the company pays for something that confers a personal benefit to you, then potentially, there's a tax charge that's going to arise. I've mentioned tax a few times, but I've not specifically mentioned which taxes.

Let's have a closer look at what those taxes actually are. Visualise, initially, your company as a separate beast, separate legal entity, and you as the individual. If you are the owner director of your company, then you must visualise that you as the owner, you as the director shareholder, are separate from the company itself.

Now, your company will be paying corporation tax on any profit it generates, it will also be paying employer’s national insurance on the salaries that are paid to you and your staff. If you are receiving a salary, subject to how much is involved, you will be paying national insurance as an employee. You'll also be paying income tax on that salary.

The employer will be paying employer’s national insurance on that salary and as the tax collector, we'll collect that and pay over to HMRC. Tax-free is a wonderful phrase. I'm going to look at tax-free benefits. So, these are items that your company can pay for. The company can claim the cost of those against its profits and reduce its company tax bill, and you can receive that without any tax implications at all.

So, let's run through what some of those tax-free benefits are. For a more detailed list, check out the show notes. There will be no tax charge where your company, your employer, provides you or your employees with a mobile phone. Irrespective of how much private use that you do, irrespective of how many calls that you make to your friends and family,

it's all tax-free. Key thing is the contract has got to be in the name of the company. So, your company paying for your personal mobile phone bill doesn't count, and straightaway, there'll be a tax charge that arises. If you own a family company, if family members work for your company, they are also entitled to a phone provided by the company, and all the bills or the costs of running that phone are deductible against the company's profits.

Second one is, there's something called trivial benefits. Now, you do not have to pay tax on a benefit if you are an employee, if it costs you less than 50 pounds or less to provide, and it isn't cash or a cash voucher. HMRC don't like cash being provided, and they don't like cash vouchers being provided.

Well, they do like them, but they'll be a tax charge. Now, if you are the director that receives a trivial benefit, then your annual limit is captured 300 quid. Now, you can spend this money, whatever. So, if you want to go out for an occasional meal out with your employees, if you want to give them a few bottles of wine as a gesture of thanks for the work that they've done, flowers to celebrate somebody's employee's birthday, as long as that gift value is below 50 pounds, it's all tax-free,

nothing to report, and you can claim that against your company's profits. Pensions are a great tax-efficient way of saving since individuals in the UK will be entitled to a tax relief. Your company can top into your pension scheme. The company can claim the tax deduction, reduce its core-pricing tax bills, and you've got a savings part building up for the future.

Now, please note this is not pension's advice, but it's something you should explore as an option in your own company. Let me throw a few more tax-free benefits at you. So, one health screening and a medical checkup per employee per year. Up to 500 pounds worth of pension advice paid for by the company can be claimed as trivial benefits. Parking at your work location.

So, if you have a car park and you ought pay for the season ticket, instead of paying out your own pocket, your company can pay for that. Interest-free loans. So, if your company has built up a cash reserve, you can borrow that money up to 10,000 interest-free. Use the loan for whatever you wish - buying a car, buying a new domestic item. Home office working - six pounds per week, and that's a heads up by the way, for the recent Coronavirus.

If you've got additional costs of working at home, from metered water, additional phone bills, insurance, then you can claim those as well. Breakfast for early starters, as long as it's available to everybody. Childcare vouchers, or workplace nursery. If you would like a company van provided, as long as the benefit is quite trivial, the private use is insignificant.

Again, that's a tax-free benefit. Whether or not you'd wish to go out, take your partner with you in your company van or not, is a moot point. In this podcast, we've talked about companies, we've talked about benefits, what they are. We've talked about some good stuff, the tax-free benefits. Now, it may be that you've got benefits you are considering, like providing a company car, medical insurance,

then there'll be two main tax implications. Number one, the value of that benefit will be treated as part of your salary and you will pay income tax on that benefit. How much you pay depends on your personal status as a taxpayer. Whether you are what's called basic, higher, or additional, the company will also pay employers national insurance on the value of that benefit.

The one key tax that you won't be paying as an employee, you will not be paying employees national insurance contributions on that benefit, and therefore you avoid paying 12% on that benefit. It is still worthwhile exploring, paying yourself via benefits because it can work out much cheaper for you and the company in terms of the tax savings that you make overall. If you need to pay for something

personally, that money comes ultimately from your business. So, what you need to consider is for you to have, say, a thousand pounds in your savings account, in your personal account to which to spend, then that money comes from the company conventionally under a salary route, or conventionally comes through dividends.

Getting the company to actually pay for that item directly can benefit you overall. Visualise you and the company now in this context as one of the same, and I'm just going to throw some numbers at you, which illustrate why benefits, if structured correctly, can produce an overall benefit in terms of savings for you and the company.

There are three types of taxpayer in the UK in terms of the level of money they earn. There's something called a basic-rate taxpayer, which is where an individual has income up to 50,000 pounds per annum. A higher-rate taxpayer is between 50,000 and 150,000, and the eye-watering rate of additional taxpayers are income in excess of 150,000 pounds.

Let's assume you as an individual required a thousand pounds on which to go out and procure something of a personal nature. If you are being paid through a salary route, the cash cost of that would be just under 1,360. Dividends will be slightly cheaper, just under 1,300, but the benefits route would actually cost 1,122.

So, benefits wins hands down on that one. Benefits still ups the game. If you go into the higher-rate band, benefits will cost 1,300, and that's taking to account your personal income tax, the company corporation tax savings it can make, the additional employee’s national insurance, and also, factoring in the savings on employee’s national insurance. In that situation, dividends, by the way, become a more expensive option.

Salary is the second, but benefits still become cheaper. Once we hover into that 150,000 pounds a year plus dividends are more expensive. Salaries are the second option at 1,700 pounds, and benefits are still cheaper. Again, for more details, check out the show notes. What we're trying to illustrate here is that looking at paying yourself via a benefits route as well as cash is actually a good tax-planning option, which tends to be underexplored.

Check out podcast 26, by the way. That episode is on dividends - what, why, and how? And I'll explore that topic in greater detail. Okay, folks, let's summarise where we are. So, benefits can be a very good, powerful, legitimate way to pay yourself and minimise the overall tax burden for you and the company. Providing benefits.

There are some nice ones that are tax-free from mobiles, trivial benefits, pensions, health screening, pension advice, parking, interest-free loans, loads more that we can factor into that as well. Even if the benefit is taxable, it is still worthwhile potentially to explore that because it's the company paying for that as opposed to you individually.

Now, one last thing to mention as a key piece of housekeeping. I mentioned employees, so it's critical in your company that you must register your business, your company as an employer. If you don't register your company as an employer, if you are an owner-director and you wish to provide benefits to yourself as well as your team, you must be a registered employee with HMRC.

Typically, most company owners may be paying themselves as dividends and ignoring a salary option. You need to register your company as an employer. You need to provide yourself a salary. It doesn't have to be a significant sum. You also have to do, once a year, complete and file what's called a P11D and pay any employer's national insurance that's due on that.

Okay, folks, I hope you found this useful. Hope you want to consider looking at benefits as an option as to how to pay yourself in the most tax-efficient way. Check out the show notes, drop us a line if you need any more information or help with coming up with a benefit scheme for your particular business.

Have a great week. See you next week. We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.