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

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