Tax Digest

If you are a small business owner, it always sounds like a good idea to get a ‘company car’ through the business. For many, this is a great way of reducing their corporation tax liability and gaining a useful asset which can be used for both business and personal purposes. Yet, many self employed individuals are unsure of the tax implications of owning a vehicle and using it for personal journeys – what does this mean for your personal tax liability?

Benefit in Kind

A benefit in kind is the tax levied on the benefits provided to an employee or director by a limited company. A tax is required when a company provides an employee with a benefit because this benefit is usually provided at a greatly reduced cost than if the employee was to purchase/rent the asset themselves. For instance, if a company wanted to give an employee extra salary to pay for the rent of a vehicle, they would pay tax on this additional salary. There is no difference between an increase in salary and receiving the ‘cash equivalent’ of a salary increase via a benefit in kind such as a company car.

What does this if you have a company car?

Any employee/director in possession of a company car and who receives the car for personal use will be taxed on the value of the ‘benefit’. This is calculated via a scale charge percentage and the list price of the vehicle. HMRC and the government try and influence our behaviour via tax legislation, so generally this benefit will be lower (you will pay less tax) if the car has lower CO2 emissions to encourage a nationwide move towards more sustainable vehicles. There is no benefit in kind levied upon vehicles that are solely for business use and there is a flat rate benefit charged on commercial vehicles such as vans.

To avoid paying excess personal tax, it might be more cost effective to log your business mileage rather than purchasing a car through the business – to avoid incurring a benefit in kind. It is important to weigh up the value of a company car (it might be a newer model and therefore useful to you as the user) against the tax implications of driving it for personal use.

We operate payroll and have a full range of personal and corporation tax services available – so get in touch to see how we might be able to optimise your future tax planning with regards to company vehicles!

With many of our clients being sole directors of their Limited Company, the most tax efficient way of receiving income has often been to take a director’s salary and then declare dividends within a self assessment tax return. A director’s salary is a deductible expense against any company profits and dividends as a basic rate taxpayer are taxed at 8.75% rather than the traditional 20% for basic rate taxpayers.

Yet, with the upcoming changes to employers national insurance, such a strategy as a sole director or ‘one man band’ Limited Company has become less viable. The lower earnings limit (the maximum salary that you could take as a sole employee without incurring Employers NI) has been reduced from £9096 per year in 2024-25, to £5004 per year in 2025-26.

The reduction in directors salary of £4092, in simple tax terms costs the director:

£778 in corporation tax for lower rate corporation tax payers and £1023 for higher rate corporation tax payers. It also requires an extra £4092 to be taken as dividends at a cost of £358. So the cost to a Limited company affected would be betweem £1000 and £1500!

The solution?

Adding just one employee to your payroll as a director can get you the EMPLOYERS NI ALLOWANCE of £5000. This would enable the director to take the full director’s salary of £12,570 (to maximise their personal allowance) and not be subject to the employers NI charge. It is important to note that the salary paid to the additional employee must be commensurate with the role that they would have as an employee at the company.

This is a common predicament that we have experienced with many clients… could this issue also apply to you!

Many of you will have received a recent letter in the post or a notification on your HMRC app about the upcoming HMRC Making Tax Digital legislation. This is coming into place from 6th April 2026.

It has certainly crept up on us, both as accountants and also for self employed individuals and landlords who will now need to report differently to HMRC.

The fundamentals of the change are as follows:

1). Sole traders and landlords will now need to keep digital records of their earnings and expenses

2). Quarterly updates to HMRC are required

3). You are required to submit your information via MTD for the 2025-26 tax if you receive more than 50k from rental income OR more than 50k from self employment income in your 2024-25 tax return. The threshold will be 30k for either source of income for the 2026-27 year

What kind of software is compatible?

These software packages might be completely alien to you… but its likely that you have seen them advertised on various forms of media

– Quickbooks

– Xero

– Sage

There are lots of other forms of software available and you can still use HMRCs free software if you would prefer 🙂

Do you think that the MTD changes might affect you? Get in touch to see how we might be able to help!

Following on from our last blog post about claiming a ‘working from home’ expense from either your employer or within your self employed accounts – let’s delve deeper!

As discussed, with many self employed traders preferring to ‘work from home’ from the relative comfort of a membership club, many of these clubs have started to provide dedicated office facilities and work stations so that their members can enjoy this added benefit of flexible office working.

By taking this into account, we should surely be able to expense the full club membership within sole trader or Limited company accounts?

HMRC take a different approach to this. Even though popular clubs such as Soho House, David Lloyd and Total Fitness now offer meeting rooms and excellent wifi – the fact that these clubs also offer leisure facilities means that there is no clear distinction between the business and leisure proportions of the monthly membership fee.

As such, simply paying for your monthly membership out of your business account still fails the HMRC criteria for an expense – with the expense needing to be ‘wholly and exclusively’ for the purpose of running the business. As previously mentioned, a leisure club membership would fail this test.

Ok the good news! We can still expense any wholly business related visits to a club and these should be properly recorded within your accounts. Taking a client for lunch at your club or logging a week of work and the hours that you have worked could be expensed back to the company. HMRCs regulations are still strict on this though! So you would have to prove that these specific visits were exclusively for business and not for leisure, if challenged by HMRC.

Sounds tricky but with the help of an accountant, you can definitely maximise the potential of any flexible working spaces that you use. Get in touch to find out more!

After COVID, the amount of people who now work a few days a week from home has skyrocketed. Such is the quality of conference call software such as Teams or Zoom that we can communicate with colleagues without the stress of a morning commute. With working from home therefore becoming an option to many employees, there also comes an inevitable cost to the employee. But is this expense available to everyone?

How can I go about claiming this?

You can put in a claim for working from home expenses within your self assessment tax return if you are self employed (meaning you in theory have no fixed place of work), or alternatively you can find out more via your government gateway account if you are in full time employment. You must have proof from your employer that you are required to work from home to justify receiving any expenses for working from home.

If you are an employee with hybrid/remote working arrangements you cannot claim tax relief because in the eyes of HMRC, you have the option to use your employers office/work space. This even extends to if your employer has an office but you cannot work there because it is at full capacity! Talk about cracking down!

Get in touch to enquire about whether you are entitled to claim expenses for working from home! It could make all the difference to your next tax return 😊