Saving Tax As Self-employed and/ or a Company Director | Things you SHOULD know…

Introduction

Gemma:

Today we’re going to be focusing on company directors and how you can save money on your tax return.

Are you self-employed and thinking of setting up as a limited company?

Wondering if this might help you save tax?

Already a company director and want more tips to save even more money?

We’ll be covering all of this and more.

Hi, welcome back to our channel and podcast. My name is Gemma and here at WIS we talk about all things relating to money, mortgages, and positive money mindsets. If that interests you, make sure you subscribe and hit the thumbs up – it really helps with the YouTube algorithm and ensures you don’t miss out on future videos.

On today’s podcast, Let’s Talk Money & Mortgages, we have Vijay, co-founder and director of WIS Accountancy. He’s worked in the industry for over 20 years and is the go-to person for tax and accountancy matters.

Self-Employed vs. Limited Company

Q: For anyone who doesn’t know, what’s the difference between being self-employed and running a limited company?

Vijay:

Great question – lots of people get confused here.

Self-employed (sole trader):

• Work on your own account without forming a company.
• File a personal tax return.
• Pay only personal income tax (no corporation tax).
• Less paperwork than a limited company.

Limited company contractor:

• Form a limited company and do your work through it.
• Advantages:
• Tax benefits.
• Limited liability protection.
• Potential tax savings (we’ll discuss this shortly).

But a limited company isn’t for everyone. With corporation tax rising in future, it’s important to get professional advice before deciding.

When Should You Consider a Limited Company?

Q: A lot of people say, “I’m self-employed, should I set up a limited company?” When might you advise people to do that?

Vijay:

There’s no set number – it depends on individual circumstances. But:

• If your income is above £50,000, it’s usually worth considering.
• Startups earning £20,000 now could be earning millions later – so plan ahead.
• Always seek professional advice based on your situation.

Claiming Expenses

Q: If I’ve got my limited company, what kind of expenses can I claim?

Vijay:

Quite a lot – provided they are wholly and exclusively for business. Examples include:

• Trivial benefits.
• Pensions.
• Business travel.
• Business meals.
• Many more (we give clients a full expenses list at WIS).

If you’re our client, email us for our “special list” – really it’s just HMRC’s list simplified and shortened.

Receipts

Q: Do you need receipts for these expenses?

Vijay:

Yes. It’s a misconception that you don’t. You must keep either:

• Hard copies (e.g. in a shoebox), or
• Soft copies (e.g. scanned and uploaded into accounting software like Xero).

Exceptions

Q: Are there exceptions where receipts aren’t required? For example, mileage?

Vijay:

Mileage works differently – you use benchmark rates:

• First 10,000 miles: 45p per mile.
• After that: lower rates.

But you still need supporting evidence:

• Fuel receipts.
• MOT records.
• Journey logs.

So you can’t just “claim 10,000 miles” without proof.

Company Cars

Q: Are company cars a good idea? What about electric cars?

Vijay:

Misconception: people assume a company car always saves tax.

If you buy a diesel or petrol car with a large engine, it’s usually tax inefficient.

Electric cars are far better:

• Very low Benefit-in-Kind tax (0% to 2%).
• Eligible for capital allowances (deduct from profit).

But make sure your company has the funds. Don’t misuse loans for vehicles.

Director Perks

Q: Are there perks for directors?

Vijay:

Yes, quite a few:

• Trivial benefits: £50 up to 6 times a year (£300 total).
• Staff welfare: e.g. Christmas or Easter parties.
• Home office allowance.
• Relevant life insurance (company-paid life insurance).
• Private medical insurance (though this has Benefit-in-Kind implications).

Home Office Allowance

Q: How can directors benefit from home office allowances?

Vijay:

Two situations:

Employed and asked to work from home (COVID etc):

• Claim £6 per week via HMRC.

Self-employed/director:

• Use calculation based on:
• Number of rooms in house.
• Proportion used for work.
• Costs (mortgage interest, council tax, utilities, etc).

Be careful:

• If you claim your whole house as business, HMRC may reclassify it as commercial property.
• That could affect council tax (business rates) and capital gains tax relief when selling.

VAT

Q: Will registering for VAT save you money?

Vijay:

If your turnover is £85,000+, VAT registration is mandatory.

If below, it’s optional but can be beneficial.

Benefits:

• Claim back VAT on purchases.
• Forces quarterly returns → cleaner records.

Misconception:

Adding VAT doesn’t necessarily mean a price increase – other businesses can reclaim it.

Childcare

Q: Is there government assistance for company directors with childcare?

Vijay:

Old Childcare Voucher Scheme (up to £243/month) ended.

Replaced by Tax-Free Childcare:

• Pay into government pot.
• Receive tax relief.
• Use funds to pay nursery fees.

15–30 hours free childcare still available (ages 3–5).

Audience Questions

1. Can you add your spouse to the company?

Vijay: Yes. You can transfer shares to your spouse. Settlement laws (Arctic case) apply, but as long as it’s 50/50 or less, it’s fine.

2. Are pensions a good option for company directors?

Vijay: Absolutely. Pension contributions:

• Count as company expenses (reduce corporation tax).
• Don’t affect your personal tax.
• Get independent advice for the right setup.

3. What about investing in property through a company?

Vijay: Increasingly popular because:

• In personal name → mortgage interest isn’t deductible.
• In company → mortgage interest is deductible.
• Easier to reinvest profits.

Downsides:

• No personal capital gains allowance.
• Higher mortgage interest rates on company properties.

4. Do you pay tax when closing a business?

Vijay: Yes. Options:

• If funds are small: take as dividends (taxed at dividend rates).
• If over £35,000: use Members Voluntary Liquidation (MVL).
• Treated as capital distribution.
• Eligible for Entrepreneurs’ Relief (now Business Asset Disposal Relief) → 10% tax rate.
• Lifetime allowance: £1 million.

But you can’t “phoenix” (close then reopen) for contracting – banned by HMRC.

5. Entrepreneurs’ Relief – how does it save tax?

Vijay:

When liquidating, distributions are taxed at 10%, not dividend rates.

Conditions:

• Company must be trading for 2+ years.
• You own 5%+ shares.
• You’re active in the business (director or employee).

Conclusion

Gemma:

Thank you, Vijay – some fantastic points there!

Reminder: These tips may or may not apply to you. Always check with an accountant.

If you don’t have one, we’ll leave WIS contact details below – we’re always happy to help.

Thanks for joining us, and we’ll be back next week with another episode of Let’s Talk Money & Mortgages.

Stay safe and see you soon!