The Fizz! Blog

Can my company pay for this cost? A useful heuristic

If you’re wondering whether it’s appropriate for your company to pay for something, think back to a time when you were employed by someone else.

If you’d made an expense claim for it, would they have repaid you without thinking twice?  If so, in most cases it’s going to be fine for your own company to be paying it.

Or would they have told you where to go?  In that case, it’s probably not fine for your own company to be paying for it!

Someone recently told us of someone they know who is always finding some conference or other in the vicinity of a place they want to go, on the grounds that attendance for a day will make their entire holiday legitimately payable by their company and tax-deductible.  Of course it won’t!  And the technique we’ve outlined here works perfectly.  If you tried to claim that from a third party employer, not only would they not pay it, they’d probably take disciplinary action!

Maybe you had a mean employer before, who’d outrageously refuse perfectly legitimate expense claims.  But if you had a normal, reasonable employer, something they’d not have paid for is generally unlikely to work as a cost for your own company.

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If you have a limited company, avoid using the word “claim”!

Often, people trading through a limited company will say “I am a limited company”. They are not a limited company, they are a human who owns a limited company. Their accountant should keep picking them up on it and correcting them, not to be pedantic, but because cementing the difference in your mind is important.

Company owners early in their “journey” (sorry) will often ask “can I claim cost X?”. A better perspective is to think “is this a cost which should properly be paid by my company?”. The rent on the Fizz offices isn’t somehow “claimed” against tax. Fizz just pays it, obviously! Fizz doesn’t “claim” the salaries of our staff. It pays them. Equally, when the directors are out and about travelling for meetings and the like, we just pay for our train tickets with a company debit card to begin with, straight out of the company bank account. Job done. There’s no reason, in the limited company world, for the word “claim” to be used, other than in the specific context of employees making formal expense claims for things that they’ve necessarily paid themselves and need to be reimbursed for.

Companies don’t claim things, they pay for them. If you can separate the company and yourself in your head, then life becomes a lot easier.

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Some thoughts on price increases

• Try and increase your prices every year.  It’s a much easier sell than occasional upward lurches.
• There’s no need for long-winded explanations justifying an increase in terms of all the costs in your own business that have gone up.  Everyone knows and understands that already.
• You almost certainly know who will push back on an increase, if anyone.  So it’s got little or nothing to do with the level or fairness of the increase itself.
• In general, fewer people will push back than you think.  If nobody pushes back, the increase wasn’t enough!
• Price lists help, even if it’s an internal list that you don’t share with customers. “Because that’s the standard price we charge for that thing” is actually a largely bomb-proof answer to the question “Why is that the price for that thing?”.
• Price lists also help if you’ve realised someone is paying way under the odds for something.  If you’re able to honestly tell them what the standard price is, it’s clear why you’re increasing it.  If you don’t go all the way up to the standard, they might well actually be grateful that you’re still cutting them a deal.
• If your prices are lower than similar businesses, you're sending a signal to many people that you're worse than the others.
• If your prices are higher than similar businesses, you're sending a signal to many people that you're better than the others.
• We bet we’ve several clients who could double their prices and be no worse off.  As long as you retain at least half of the customers, you’re at least as well off and will be working less!
• All this applies to B2B and to B2C - whether you’re selling to other businesses or private individuals, it’s all the same.

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How can I find out how much bank interest I’ve received?

Earning interest on cash in the bank is a good thing for savers, needless to say! But it does mean that a lot of people do now have to disclose interest to HMRC on their tax return, never having done so before. And, based on the frequency with which we’re asked about it, it can be quite tricky to figure out how much you’ve received in a tax year. In the olden days, banks would generally send you a paper certificate giving you the numbers. That’s pretty rare now.

There’s a good chance you can get the equivalent certificate/numbers from the banking app on your phone, but that’s not always the case. Based on a small sample at the time of writing, we reckon two of the three mainstream banking apps we looked at could provide an annual interest summary, though in neither case was it exactly where we’d expect to find it. A fourth told us via chat that they could post a certificate out on request, but also told us we could download it from a particular bit of the app - it wasn’t there, though.

If it’s not on the app, you might well be able to get the certificate/summary from online banking.

If not, then - you’re just going to have to look at your bank statements for the year and add the interest up! Sorry.

www.fizzhq.com

If you had the cash, would you buy the thing?

Quite often, people come into possession of a thing, and it doesn’t initially occur to them that they don’t have to keep the thing.

If someone inherits a house worth £500,000, say, their initial reaction is very often that they’ll rent it out. If they’d inherited £500,000 cash, would they have bought a house just like that one to rent out? Not in a million years! So, logically they should just sell the house (there’ll be no tax to pay if they sell it as soon as they get it) and use the £500,000 cash to do whatever is better for them.

If someone on PAYE gets £150,000 a year of net pay and £100,000 of shares in their listed employer, normally their instinct is to hang on to the shares. But if their net pay was £250,000 a year cash, would they use £100,000 of it to buy shares in a single company, upon which their own income is also reliant? Not in a million years! They should probably sell some or all of the shares (again, tax-free if they do it right away).

When events like this happen, take a step back and think about what you’d do with cash. Because you could actually do that.

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Can I save tax on my Audible subscription?

Are you a sole trader who only listens to things related to your business? You can save tax on the entire cost.

Are you a sole trader who listens to both things related to your business and other stuff? You can save tax on the percentage of the subscription that you think fairly reflects the business part.

Are you a limited company owner who only listens to things related to your business? The company can pay for the whole subscription and save tax on the lot.

Are you a limited company owner who listens to both things related to your business and other stuff? Unless the personal element is more or less incidental, you should just pay the sub yourself; there’s no provision equivalent to the sole trader one for somehow splitting it, and if the company pays for it then you’d have to pay tax on the cost. Fortunately, it’s hardly an expensive thing to have to pay personally.

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What does the abolition of the Furnished Holiday Lettings regime mean to you?

If you don’t own an FHL, nothing! And even for some people who do own one, not much. But for some owners, the impending end of their special tax regime will make a difference.

Historically, rental properties that tick the boxes to be classified in this way (broadly, available for rent most of the year, actually rented to holidaymakers most of the time, and not to the same person for an extended period) have received special tax treatment. From April 2025, that will no longer be the case.

The revisions will remove the tax advantages that furnished holiday let landlords have over other property businesses:

• At present, unlike other residential property income, a landlord can save tax on all the associated interest payments - owners of conventional Buy To Lets can save 20% at most. Individuals owning an FHL will face the same restriction.
• FHLs have had more generous Capital Allowance rules. But they’re going, and instead the owner will get the same “replacement of domestic items relief” that other property businesses have.
• Capital gains tax reliefs based on disposing of a business asset will no longer apply to FHLs.
• FHL income will no longer be included within relevant UK earnings when calculating maximum pension relief.
• At the moment you can effectively allocate the profits to either owner of a jointly owned FHL, but under the new regime they will have to be split according to normal ownership rules.  These rules refer to the underlying legal ownership of the property - you'll need to refer back to how the ownership was set up when you bought it, and your accountant can tell you what that means for your rental profits

If you own properties that currently qualify for the FHL tax regime, you should definitely consider if and how the changes are going to affect you. They may make no difference to you - but they’re definitely not going to make anyone better off.

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Small businesses aren’t responsible for tax evasion - tax evaders are

Back in September, a National Audit Office press release regarding tax evasion got a lot of coverage - in particular, its assertion that 81% of tax evasion was down to small businesses.

Two thoughts:

1. Tax evasion is down to tax evaders. It’s not somehow perpetrated by small businesses as a class. If a takeaway is using sales suppression software to hide income from HMRC, that tells us absolutely nothing about small businesses generally. It tells us that at least one person within that particular business is a criminal.
2. If 81% of tax evasion is down to small businesses, that means 19% must be down to larger businesses. Looking at the report, that means companies with sales revenue of between £10m and £200m a year (the report attributes zero tax evasion to businesses larger than that). This is more surprising! Businesses of that size generally have segregation of duties, external auditors, governance committees and so on. How on earth are they somehow managing to deliberately evade tax at an organisational level?

The second point (if the statistics are to be relied upon, anyway) is surely the more interesting story! If anything, you’d think 100% of tax evaders would fall into the “small business” category because that’s where checks and balances can be dodged.

In fairness, the report itself does drill into particular activities (like sales suppression software, and phoenixism), and it’s clear that HMRC are trying to look at those areas specifically. But headlines smearing small businesses generally are not especially helpful to anyone.

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Is it time to actually withdraw your Director’s Loan Account?

At any point in time, most directors of small limited companies either a) are owed money by their company or b) owe money to their company.  The former is obviously a nicer place to be in general.

Money owed by a company to a director can accumulate for lots of reasons, including funds actually lent to the company to get it started, expenses or mileage not yet reimbursed, allowances for working from home and so on.  Historically, many directors have been happy to let this Director’s Loan Account build up.  If you don’t need the money in your own life right away, you might well be happy to leave it where it is rather than risk frittering it away!

That was all very well when interest rates were next to nothing.  It didn’t matter too much whether you had the £30,000 or the company had the £30,000.  Nobody was going to earn interest on it, so if its purpose was to be a rainy day fund, it was fine left in the company.  Now, however, interest is a real thing!  If the director gets her loan repaid to her and puts it in a savings account, she’ll probably earn interest of £100 a month.  And some of that’s going to be tax-free, even if it’s not in an ISA.

The company could itself put the money in an interest-paying account of course (and, if the director is going to leave the money where it is, it probably should).  But the company will pay corporation tax on all of the interest, and then when the director one day takes that extra money out of the company, she’ll pay tax too!

So, think of making savings work for you, and if you’ve money in your company that you can draw out tax-free, now may well be the time to do it.

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Worry less about whether costs are tax-deductible, more about how much profit you’re making!

One of the most common questions from people new to business is - what costs can I set against my income when working out my tax bill?  This is both completely understandable and largely wrong-headed.

It’s easy to assume that the point of keeping accounting records is to enable you to fulfil your legal obligations - your accounts, your tax return, maybe your VAT returns.  They’re useful byproducts of accounting records, without doubt.  But the fundamental point of the accounting records is to record how well or badly you’re doing.  If you’ve lots of costs, or your profits are low, that’s important information that you might want to address (by considering whether the costs are higher than they need to be, or income/margins are too low, or if you should just get a job, for example).  The fact that most or all of the costs may be tax-deductible is really a consolation prize - tracking and contemplating them is the key thing.

To put it another way - would you rather have a) £100,000 of revenue and £20,000 of costs, none of which are tax deductible, or b) £100,000 of revenue and £70,000 of costs, all of which are tax deductible?  Hopefully you’d prefer the £80,000 of profit over the £30,000, even if the tax bill is a bit higher!

In fact, most costs that you incur as a result of starting your business are going to be tax deductible, so that extreme example is a bit silly.  Hopefully, though, it makes the point - focus on profit, not tax.

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