A person in his whole life can’t stop himself from purchasing. VAT Charge and claiming it back on different goods is a circulating process. We buy things carrying VAT, and ultimately through an indirect method, it is the way. In this article, you’ll learn how can you save tax on business items.
While considering business, a person can entertain himself through many benefits. First, it’s amusing and exciting to purchase an item at less price because of the specific rules. Then, of course, it will help you to save money to buy another thing. Isn’t it cool?
The important thing is that before thinking of all the benefits, you must register yourself. You can only enjoy all the advantages if you are VAT registered. So being a business person or an entrepreneur, it’s practical to get yourself register for VAT Charge.
Save tax on business items
Let us set an example for you to understand the essential pathways adopted. These pathways will ultimately lead you to save money. Let’s suppose you were a student for six years, and after that, you started some business. Your work got for a VAT account, and you are thinking of buying a new car. Not just a vehicle, the latest model elevated automobile!
You have ordered an electric car worth £50,000 online. But in actual it’s not £50,000 you have paid. In fact, you have to pay less than the half amount. So, how are you now? Let’s unleash the hidden secrets behind this purchase.
When you are in business, you have to write off your business expenses. However, if you are buying something solely for business usage, you can keep the cost of the product entirely out of business. You might use a personal account for this purpose. It indicates that the amount of money spent purchasing that product is not your business profit. So, ultimately you don’t have to pay any corporation tax because the car was from your money and not from your business profit.
Corporation: Save tax on business items
Corporation tax is nineteen percent. Suppose your business is making £100,000. You will be submitting nineteen percent of £100,000 as a corporation tax to HMRC-Her Majesty’s Revenue and Customs. It means you’re paying £19,000 as a corporation tax, and now you are with £81,000 as your business earnings.
If you are buying something solely for business and the government has considered it a writing-off expense, you are not supposed to add it into your business income. For example, you are going to purchase of car again. If you bought a vehicle for personal use only, the overall business income would shift from £100,000 to £50,000. Now, corporation tax applies to £50,000, which comes out to be £9500. As a result, a great way to save tax on business items. So now you are left with a total business income of £41,500.
At first, you were paying £19,000 as a corporation tax, but after buying a supermodel car, your cooperation tax has been reduced to £9,500 only. So it feels like you are saving some money. You can buy a car with this saved money, or you can consider this saved amount playing its role in the car already purchased! Up till now, you have saved £9,500 from corporation tax. If the car’s original price was £50,000, now it costs £40,500 to your business.
Business items for business purposes
You can use business items only for business purposes. For example, while writing off expenses, you have to justify your product for the business cause. Explaining other things might be easy. But justifying a car as a business item might carry some problems because you can use a vehicle easily for personal use. How are you going to explain that while going from your office to a nearby café shop, you were on a business cause or not? So, a method to save tax on business items
If you are using a product for business and personal use in the UK, you get another advantage called Benefit in Kind. Some items are exempt from benefit in kind, just like electric cars. It means now you can use your car as a person and don’t have to pay any additional tax on it.
So, currently, you have invested £40,500 into your car. But do you think we can save some more money? Let’s see! If you are a business owner and have to take £50,000 straight out of your business, you do it by dividends. Dividends also apply 32.5% tax if the threshold amount is more than £37,500 a year.
So, if you are taking £50,000 straight out of your business instead of buying a car, you will have to pay £16,250 as a dividend tax. Don’t forget that £50,000 is your business profit. If you are not buying a business car out of it, you have to pay corporation tax first, and then you have to pay dividend tax on the remaining amount. So you are almost left with £27,000. So by making an intelligent decision, you can save £9500+ £13,162.5=£22,662.5 and increase your income amount.
More cases to save tax on business items
As discussed in the earlier scenario, if you were a student, you might have to repay your student loan. Let’s suppose your student loan implies 9% on the money eared above £20,000. You will be paying £2,460 as Student Loan.
The overall money left after corporation tax, dividend, and student loan repayment comes out to be almost £25,000, half of the starting money!
By buying a car worth £50,000, you can automatically save £25000, which you were going to pay all sorts of taxes mentioned before. You might notice that you didn’t buy a car for half of the price. By purchasing a business product, you use your business to save half price of the electric vehicle you would have had to pay if you had taken out the money instead of buying it! A simple formula applies.
By utilizing your money better and thinking of all the possibilities before you spend it, you got some benefits. At first, you are saving half of the spent money. Secondly, you have bought something not only for your business use but also for your personal use as well. Thirdly, you had more fun saving the tax than actually driving the car.
To know more, you can read the full article on reclaiming VAT.