Leading Chartered Accountants, Raffingers, have written this article for us on tax tips for recruitment agencies. Raffingers specialise in delivering financial and strategic advice to recruitment businesses.
Tax can be a never-ending minefield. Businesses that don’t regularly review their finances run the risk of being non-compliant and of paying too much tax. These tips are here to help you get more from your recruitment agency and ensure you are running as tax efficiently as possible.
1. Pay Yourself Efficiently
The dividend allowance has been reduced. Since April 2018, the tax-free allowance for dividend income reduced to £2,000. To extract money tax efficiently you need to consider the right split of dividend, salary and BiK.
BUT, did you know that you can also consider paying interest on loans made by directors to the company. To find out more about this process and whether it can help you extract more money from your business, read our article ‘Extracting Profits Tax Efficiently from Your Company’ here.
2. Keep it in the Family
The personal allowance is currently £11,850. Have you considered utilising the personal allowances of family members who are able to carry out duties in your business?
3. Working from Home?
If you work from home, you can claim a tax deduction to cover part of your home running costs. HMRC allow (a modest) £4/week without asking for any evidence. You may be able to claim more, depending on the proportion of your home used for work purposes.
4. Plan Ahead
This is especially important if you aspire to sell your agency in the next 10 years. The best way to minimise your tax bill and maximise value is always going to be to plan ahead. Buyers are interested in profit and will not pay more for ‘potential’, you need to show that you are already successful, have control of your costs and are low risk. Planning for sale in advance will mean you have the right structures and processes in place to minimise your tax bill and get the best value for your agency. Speak to our Partner, Lee Manning, to see where you may be able to save.
5. Can you Benefit from Investment through the EIS or SEIS?
If your company has been trading for less than two years, with less than £200,000 of assets you may be able to benefit from investment through the Seed Enterprise Investment Scheme (SEIS). Or, if your company is under 10 years old, with less than £15million of assets the Enterprise Investment Scheme (EIS) may be for you. These schemes are ideal if you are struggling with your cash flow or require investment to get your business to the next stage.
6. Are you Eligible for Research and Development Tax Credits?
Any business that invests, develops or innovates a product or process could be eligible for Research and Development Tax Credits (R&D). It is not just those who are in the technology sector that qualify. If you have developed a new process, such as an internal system, you may be eligible to claim the relief.
7. Don’t be Caught Out by Unnecessary Fines
Be organised and make sure you are aware of your legal requirements. For example, P11D rules and regulations are complex and the penalties applied for not submitting returns on time are hefty. If you are a director of a company and your company has provided benefits or expenses to either yourself or your employees, you are required by law to provide details of these benefits to HMRC via a P11D. We advise you keep on top of your obligations.
8. Make the Most of Tax-Free Benefits in Kind
There are many benefits that you can deliver to your employees that are not liable to tax and National Insurance, these include:
- Increased Pension Contributions
- Childcare vouchers
- Long term service awards
- Suggestion Schemes
- Mobile Phones
- Subsidised or free canteens
- Welfare counselling
- Annual staff parties (cost per employee must not exceed £150, including VAT)
- Non-cash rewards that are below £50
9. Have the Correct Company Structure
Consider whether your agency would be better off as a sole trader, partnership, limited company or limited liability partnership (LLP). There are pros and cons to each of these structures, all depend on your personal situation and your aspirations.
10. Make the Most of Company Pension Schemes
Pension schemes are deductible for the company and you can select how much you pay into them to reduce the tax you are liable for. For example, for 2018/19 if your income exceeds £100,000, your personal allowance (£11,850) will be reduced by £1 for each £2 of income above £100,000. Therefore, you can opt to increase your pension contributions to reduce your salary and the tax you are liable for.
11. Company Cars
It is often more tax efficient for you to run your own car and claim mileage using HMRC authorised mileage rates. However, if you prefer to have a Company Car, know the rates and which type of car is of better value to you.