You’ve earned it! Tax-efficient luxuries for the self-employed

It’s the dream scenario; you’ve taken your salary, paid yourself dividends and there’s still a good wedge of cash in your business. Congratulations – you’re officially a success story! So what are you going to do with all that money?

If you’re picturing a sunny beach and some kind of complicated fruity cocktail, we’re right there with you. But that’ll involve taking more in dividends or a larger salary, which means paying a higher rate of tax. However, there are tax breaks available for many items an employer should provide for their employees, so certain luxuries will help you to save while you treat yourself.

Tech fantasies

Until 31 December 2015, the government is offering 100% tax relief up to £500,000 when businesses invest in machinery. You probably won’t spend half a million on tech, but the limit will decrease in 2016, so keep your eye on this website for updates just in case. Machinery includes laptops, smartphones and that shiny new iPad you’ve had your eye on, so go ahead and buy yourself the latest model. Software counts under this heading too, so you may as well get the best.

New set of wheels

If it’s finally time to ditch your banged-up old Ford Fiesta, it’s worth looking into your company car options. You can only claim back VAT if you can prove it’s for business use only, but if it’s for personal journeys too, you can still claim capital allowance against tax. The amount depends on how carbon efficient the vehicle is. Here’s a little chart to help you out.

If you’re using it for personal journeys, the taxman will consider this a benefit-in-kind, which makes it subject to income tax. As a rough guide, an £18,500 Volkswagen Golf will reduce your allowance by about £2,800, so keep an eye on your personal accounts (or let a trusted accountant friend do it for you).

Office in the garden

It is possible to claim capital allowance on fitted furnishings like having a new kitchen or bathroom installed… but think it through, first. Your home might be your office, but if its primary use is as a residential property, there are limits. Unless your company qualifies as a furnished holiday lettings business, claiming on a kitchen is a no-go. You might try and convince the taxman that a fancy coffee machine, smoothie maker and American-style fridge are fundamental to the workings of your company instead.

More realistic might be something like a Dunsterhouse – the modern equivalent of home office, built to look the part right there in your garden. Of course, you’d have to be sensible about it. If the taxman pays a visit, he won’t look too fondly on your luxury nook if it happens to look suspiciously like a man-cave or a ‘tiny house’, complete with snooker table and beer fridge.

If you’re in doubt about what will or won’t work, give My Accountant Friend a call, and they’ll be happy to advise you on the ins and outs of tax-efficient luxury spending sprees.

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