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Sam's Own…Extracting Value Tax Diagnostic Review

Updated: Mar 9, 2023

There are roughly 5 levels of tax reviews a business might need, dependent upon where the business is up to in its business lifecycle.

This is an example of my level 2 tax review.

For me, money management is not about the money you earn, but the money you keep. That’s why I love tax consultancy so much. It focuses on this mantra.

Household Income

It’s important to me that we maximise our household income in a tax-efficient manner, especially with 2 kids under 5 with ever-increasing nursery fees to pay.

My husband has a full-time job so it isn’t possible for him to be employed by the business and provide any services to the business as we simply don’t have time with the kids!

I do, however, consider my income to ensure that I don’t lose the entitlement for my family to child tax credits and become subject to a higher income tax benefit charge. Whilst the kids are young, I have managed this by reducing my working hours and salary to have time off during the week with the kids and reduce nursery bills. The reduction in income versus the higher income tax benefit charge has counterbalanced itself.

Lease car versus company car

I had been considering getting another personal lease car when my existing one came up for renewal but then I realised how long the lead time is for a new car (18 months plus) and also how ridiculously expensive lease cars had become if you wanted anything hybrid or fully electric. We wanted a second electric car in the household to reduce fuel costs and do our bit for the environment.

The company had a hybrid petrol car from a former employee and offered it to me to use. I jumped at the opportunity! The car has a BIK value of £427.35 so it works out quite cheap compared to the monthly cost of a personal lease car. All of the extra running costs of the car were covered by the business – I can take advantage of free car insurance, repairs, new tyres, and servicing which all normally add up to a decent amount per month.

Pension Contributions

I contribute 10% of my basic salary to my pension every month. The company kindly tops it up to 16% which means that every month, 16% is going into my pension pot to save for my retirement. The salary I contribute goes tax-free so it’s a win-win!

Company Loans

Recently, I took out a £10K tax-free loan from the business. I didn’t need it, I just took it because the company had spare cash flow and you can take the loan of £10K tax-free.

My thinking here is to simply invest this into a cash ISA and make more back, tax-free whilst interest rates are higher.

Maximising business expenses paid for personally

It is critical that business owners maximise business expenses wherever possible as these amounts can add up. Sometimes you forget to claim them, you don’t keep a receipt, or you didn’t realise that you could claim for an expense; as it is just something you do rather than realising it is a business cost, not a personal one. That means ensuring claiming travel expenses on trains/flights and mileage allowances when travelling for business. Also, subsistence expenses when eating & drinking when traveling on business as well.

Employee Benefits

There are a few personal quick wins in terms of benefits every business owner can do:

  1. My annual pension advice tends to be mostly covered by the £500 allowance.

  2. Mobile – I have an iPhone 12 pro with a Vodafone sim. Saves me £600 per year of personal expenses as I can use the phone for personal use and I get a decent phone to use. I am considering an upgrade when the contract renews in the summer.

  3. Trivial benefits – this ensures I can get a few tax-free treats over the year. An Amazon voucher to treat myself for Christmas, a lovely bunch of flowers on my birthday and a Hotel Chocolat easter egg aren’t to be sniffed at.

  4. £150 per head slap-up dinner for the Xmas Do.

My Extracting Value Tax Diagnostic Review

So there you have it, my Extracting Value Diagnostic Review. As I mentioned earlier, there are roughly 5 levels of tax reviews a business might need, dependent upon where they are in their business lifecycle. This is an example of my own level 2 tax review.

If you haven’t already, get on Diagnostax, and do a Tax Diagnostic on yourself, and your own business. It’s the best way to get your head into the service and you can even put together a blog like me! To find out more about Diagnostax and how we work with Accountants to grow their tax advice services, visit the website.

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