Tax question (Small Business)

cams355

Hi there, I'm new to the site but have found it very interesting and informative so far.

I own a small Engineering firm started out through business gateway, I work alone and have a small turnover with modest profit.

Since I started out 3 1/2 years ago I have paid myself a wage which mainly goes towards a loan I have for home improvements and a car. I then get taxed on the amount I pay myself, so I'm paying interest on a loan plus tax!

Would I be right in thinking if I were to sell the vehicle/s I currently own, pay off the loan then finance/lease or fund a vehicle through my business and pay myself less of a wage I would still be better off?

Would I be doing anything wrong??

I look forward to any suggestions,

richoneday

Hi there. I'm assuming that if you have been in business for 3 1/2 years then you have an accountant and they should be able to give you the best advise on leasing/buying vehicles and the tax position regarding them. Give them a call for the cost of a short meeting it could save you money in the long run.

laticsforlife

If you do go down this route then once you have the car in the business, it'll attract capital allowances to help reduce your Corporation Tax bill (only assuming if you are Ltd).

As you are PAYE (being an employee of the business) then when the business provides you with a Company car, then there are significant tax consequences of having one.

It's well worth taking professional advice before changing things, only to be worse off.

Pennywise

Assuming you're operating as a limited company (as you mention you pay yourself a wage), then bringing a car into the company will mean that you are taxed (and NI's) on a benefit in kind which may well cost you more in tax and NIC than the tax savings!

Why are you paying yourself fully by wage - it's usually best to pay a small wage and a dividend - there's no NIC on dividends!

Presumably you are already claiming your 40p/25p per mile from your company for your business mileage.

Your accountant really should be the one to ask about this - if you're not doing it the best way, it could be costing you a lot of money in paying tax and NIC unnecessarily.