Tax really isn’t taxing
Is your pharmacy paying too much tax? In the first of two articles for ICP, Atif Butt looks at some of the ways you can reduce your tax bill and end up with more money in your pocket…
As the cost of living crisis continues to bite, with inflation levels in the UK hitting a 40-year high of 9 per cent and predicted to continue to rise through the year to over 10 per cent, it’s more important than ever for pharmacy business owners to streamline their operations and make sure they are taking advantage of every tax break available.
Here we look at some tips on how you can reduce your pharmacy’s tax bill, so you can make sure you’re not paying any more than you have to.
Tax Tip 1: Make sure you’re claiming for all the expenses you can
Now this may seem like an obvious one but you’d be surprised at how many businesses we see that aren’t maximizing their deductions and consequently are paying too much tax. With the corporation tax rate set to rise next year, now more than ever businesses need to make sure they’re claiming for everything they can.
Here are some of the areas where we see businesses missing out on things they could have claimed for.
Personal expenses – Make sure you include all expenses in your accounting records, including those you may have paid for personally. This can include transport and meal costs if you have to travel for work, or costs for working from home which we talk more about below. We often find business owners incur expenses themselves on behalf of the business but fail to claim them back. Having a good accounting system and the right processes in place is key to make sure you catch everything.
Working from home expenses – If you or your staff do any work from home, HMRC will allow you to claim some of the additional costs of heating and lighting, telephone and internet, although there are different rules for limited companies and sole traders.
As a starting point, a £6 per week payment from the employer is acceptable. If you have a dedicated space for work at home you can claim an appropriate percentage of your home running costs, but if you do this there can be adverse capital gains tax implications when you come to sell your home, so it’s best to get professional advice in this case.
Tax Tip 2: Give tax free benefits to your employees
With the public focused on rising prices, there is increased pressure on pharmacy owners to raise staff wages to help them make ends meet, and this has become even more expensive with recent increases in employer tax rates. Usually non-cash benefits you provide to your employees are taxable on both the employer and the employee, but there are a number of tax free benefits you can take advantage of to reward your employees and boost morale across your staff team in the most tax efficient manner.
An annual party - costs of up to £150 per head to pay for an annual staff party (such as a staff Christmas Party) can be tax free for the employees and tax deductible for the company. The parties must be open to all employees and must not cost any more than £150 per person, or the exemption is lost in full. You can also have more than one annual party, as long as the total cost of all annual parties doesn’t exceed the limit.
Mileage allowance - if they use their personal vehicle for business (even if it’s a bicycle), any employee or director can claim expenses from the company on a tax-free basis, at the fixed rate of 45p per mile for up to 10,000 miles per annum, and at 25p per mile for anything above that.
Mobile phones – an employer can provide staff with a mobile phone as long as certain conditions are met, the main one being that the contract is in the name of the business and not the employee.
Meals – you can provide subsidised or free canteen meals to your staff, as long as these are available to all employees, even if separate facilities are provided for different groups of employees.
Trivial benefits – this includes any non-cash benefit that is less than £50 in value per employee, not exchangeable for cash, not a reward or bonus for doing well in their job, not part of their employment contract and not a ‘salary sacrifice’. This will often be given in the form of a voucher that is non-refundable and can only be exchanged for certain goods or services.
The £50 limit is per benefit and not an annual limit. There is no annual limit on trivial benefits for employees, and for company directors the annual limit is £300 per director. This can be a great way to treat your staff and do some tax efficient team building!
While the savings from each of the strategies we’ve considered above may seem quite small when looked at individually, taken together they provide a real opportunity to maximize your deductions and reduce your tax bill.
Atif Butt is a senior accountant from Hutchings Accountants.