I’ve just paid mine, and it hurt.
I was recently told by a client – “Well you’re an accountant – I bet you know all the tricks and don’t pay much tax”.
I explained I made good use of all available reliefs, and make sure all my clients do too – however there are no “tricks” as such.
A query I often receive is “should I spend some money to reduce my profits to save tax?”
I usually respond only if your business needs something and you understand you have to spend rather more than the tax due.
Here’s an illustration:-
Without Extra Spending Extra Spending to save tax
Sales 15,000 15,000
Expenses (1,150) (1,150)
Extra spending to save tax – (2,000)
Net profit 13,850 11,850
Tax payable £400 nil (as = tax free personal allowance )
So to save £400 in tax, you have to spend £2,000. Factoring in NI you’d save £580.
I explain and illustrate this to clients by saying would you rush into making a purchase because there was a discount of 29% offered? I wouldn’t – I pay more tax rather than spend on things my business doesn’t need.
Next month – Mileage, Motor Expenses of Company Car?
Tessa Finch, Finch Accountancy in Kidwelly www.finchaccountancy.co.uk