You may be aware or at least your accountant should be that tax relief is allowed by HMRC for the cost of capital equipment used in your business.
Rather surprisingly however, tax deductions are also allowed in the form of capital allowances (CAs) on items such as computers, tablets and other equipment purchased as gifts by others, but used in the course of your business.
For CA purposes you must value the gift when you first use it for business (& you were all back at work straight after Boxing Day weren’t you) and reduce this figure to take account of any non-business use. You can then claim this on the Employment pages of your 2013/14 tax return.
A simple example:
- Nigella receives a PC as a gift for Christmas
- Like all electrical equipment it fell in value as soon as it left the shop, so a value of 90-95% of its purchase price would be reasonable i.e. market value of £3,000
- Nigella estimates personal use of 15% i.e. £450
- Nigella can therefore claim CAs of £2,550, which since she is a 45% taxpayer will reduce her 2013/14 tax bill by £1,147.50
If employed then Nigella can speed any tax relief by asking her tax office to include the £2,550 CAs in her 2013/14 code number. That way £1,147.50 will be given to her by April 2014 as a reduction in the PAYE tax she pays on her salary.
Even better more tax and NI can be saved if Nigella sells the computer to her business at market value. The company pays the market value to Nigella on which no tax or NI is payable and Nigella reduces her salary by the same amount, so there’s no net cost to the company. This results in a saving to Nigella of £1,350 in tax and £60 NI and the company also saves £414 on the employers’ NI it would have paid on the £3,000 salary sacrifice. A little bit for the geeks but hey it’s worth being a geek to save some tax.
So what gifts did Santa leave you that you can claim tax relief on?
If you are interested in receiving further information or booking a strategic session with Iain to see where you can legally avoid tax, please contact Jacqueline Campbell on telephone 0191 206 4080 or email firstname.lastname@example.org.