2 tax efficiencies for your Limited Company
With the festive period approaching and after a difficult trading year for all, we’ve identified a couple of ways your Limited Company can act more tax efficiently going forwards by utilising two different allowances granted by HMRC: ‘Trivial benefit’s & ‘The annual exempt allowance’.
Trivial benefits are gifts purchased for employees (and directors) for which there is no tax/NI to pay, with the Company also receiving Corporation tax relief on any purchase, as well as having the ability to reclaim input VAT on qualifying purchases. In order to qualify as a trivial benefit there are certain criteria which need to be met:
• The gift costs £50 or less, inclusive of VAT.
• It isn’t cash or exchangeable for cash – gift vouchers for stores are allowable.
• It isn’t an incentive or bonus for work completed, and doesn’t form the terms of their contract.
• There is a cap of £300 per employee, per year (i.e. 6 x £50 gifts).
When the above criteria are met, the purchase may be deducted from the Corporation tax calculation & included on the VAT return. An example of a qualifying purchase would purchasing a £50 bottle of whisky as a Christmas present for an employee.
The annual exempt allowance however is an allowance given by HMRC to throw an annual staff function, and again receive Corporation tax & reclaim potential VAT. The allowance per employee is £150 per year, however this allowance may be split into 2 different functions during the year, for instance a Christmas party & then a summer event, each costing £75 (hen we can have them of course).
It is very important to note that if the cost exceeds the £150/employee, then the entire amount becomes taxable and not just the balance above £150. In order to qualify, the primary purpose of the event must be to entertain employees and not customers and also that the event must be open to all members of staff and not just directors (and their wives).
If you have any questions regarding any of the above, please don’t hesitate to ask and we would be happy to help with this and other efficiencies for your Limited Company.
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