Frequently Asked Questions

  • Is it beneficial to trade as a limited company?

    There are three major factors to consider when deciding whether it is beneficial to trade as a limited company.

    Tax advantages of trading through a limited company.

    From a purely tax point of view, it is nearly always advantageous to trade as a limited company. The tax advantages arise because the owner of a limited company is able to draw profits from their company as a dividend. Dividends are not subject to national insurance contributions and have a lower income tax rate applied to them than earned income.

    A company is a separate person in the eyes of the law.

    This generally means that the owner of a limited company does not have to settle the debts of their company, when the company is unable to do so.

    A self-employed business and its owner are the same person in law and hence any debts of the self-employed business are the liability of the business owner.

    A self-employed person is therefore at greater risk of being made bankrupt or of` losing their personal assets (for example their house) in order to settle their businesses debts.

    Additional administrative burden

    There are additional costs and duties associates with trading as a limited company, including the requirement to submit accounts and annual returns to Companies House.

    Action plan

    For further assistance in this matter, or any other issues relating to owner managed businesses, please phone Shacklefords Chartered Accountants on 0121 294 6670 or e mail This email address is being protected from spambots. You need JavaScript enabled to view it.

  • Mobile phone tax relief

    The tax relief available for mobile phone expenditure is dependent upon the type of business which is undertaken, be it limited company or self-employment.

    Limited companies mobile phone tax relief

    Mobile phones represent one of the best perks available for employees of limited companies. Provided the mobile phone contracts are in the company’s name, there are no tax implications for the employee. The employee has full use of the mobile phone (including private calls) without incurring any tax charge. The limited company is also able to obtain tax relief against its profits for the costs incurred.

    Self-employed

    A self-employed individual is only able to claim tax relief for the proportion of the mobile phone costs which relate to business use.

    Action plan

    For further assistance in this matter, or any other issues relating to owner managed businesses, please phone Shacklefords Chartered Accountants on 0121 294 6670 or e mail This email address is being protected from spambots. You need JavaScript enabled to view it.

  • Company cars and company vans

    Company car taxation

    From a taxation viewpoint, it is usually the case that it is not beneficial to have a company car. This is due to the high levels of taxation charged on the benefit in kind to the employee. In addition the employer has to pay employer’s national insurance contributions on the benefit in kind.

    Company car benefits in kind are calculated as a percentage of the official list price of the car. The value of the benefit is then taxed through the PAYE system.

    One of the few situations where it can be beneficial to have a company car, is where a company provides very low emission cars to employees.

    The tax relief available to an employer on the purchase of company cars is also relatively poor when compared to the tax relief on other fixed assets purchased.

    Company van taxation

    The tax regime for company vans is such that it is generally beneficial, from a tax viewpoint, to have a company van, rather than to buy one privately.

    Irrespective of the cost or type of van involved, the benefit in kind is the same. Where fuel is provided, the total benefit in kind for 2015/2016 tax year will be less than £4,000. For a basic rate tax payer, the tax on a £4,000 benefit would be £800 per year.

    In situations where the private use of a company van is insignificant (under the HM Revenue and Customs definition), no benefit in kind arises and hence the employee has use of the van free of tax.

    Alternative tax relief for business motoring

    Rather than have a company car, an employee can make mileage expense claims against their employer. Mileage can be claimed at the rate of 45p for the first 10,000 business miles and 25p per mile for additional mileage. The employer obtains tax relief for the mileage claimed and the employee receives the mileage expense free of tax.

    Business vehicle costs for self employed

    Self­-employed individuals are able to claim tax relief on a proportion of their car or van expenditure against their business profits. The proportion claimed needs to reflect the business element of the total car / van expenditure incurred.

    Action plan

    For further assistance in this matter, or any other issues relating to owner managed businesses, please phone Shacklefords Chartered Accountants on 0121 294 6670 or e mail This email address is being protected from spambots. You need JavaScript enabled to view it.

  • Holiday pay

    Number of days

    European Union law states that all full time employees are entitled to 28 days paid holiday per year. This includes bank holidays and other company compulsory shut down days.

    Rate of holiday pay

    One issue which has been clarified by a legal case in November 2014, is the rate of pay which employees are entitled to when taking annual leave.

    In situations where employees receive guaranteed or normal non-guaranteed overtime, employers are required to pay an hourly rate for holiday pay which takes into account average levels of overtime pay. The overtime element of the holiday pay should be calculated by taking the average overtime pay from the most recent 12 weeks earnings.

    The law has yet to be clarified in respect of voluntary overtime.

    Action plan

    For further assistance in this matter, or any other issues relating to owner managed businesses please phone Shacklefords Chartered Accountants on 0121 294 6670 or e mail This email address is being protected from spambots. You need JavaScript enabled to view it.

  • Pension auto enrolment

    Pension auto enrolment has arisen as a consequence of the failure of successive UK governments to encourage employees to save for retirement.

    Stakeholder pension schemes

    The UK government introduced the requirement for all employers to set up stakeholder pension schemes in 2001. It was expected that the existence of stakeholder pensions and their low administrative costs would lead to a significant increase in the numbers of employees saving for retirement. The number of employees contributing to stakeholder pensions proved to be disappointing.

    Pension auto enrolment rules

    Pension auto enrolment will apply to the vast majority of employers in the UK.

    Smaller and medium sized companies have to commence pension auto enrolment in either 2016 or 2017. Employers are able to find out their staging date from the Pension Regulator’s website.

    Under pension auto enrolment, all eligible employees will automatically join their employer’s pension scheme, unless they chose to opt out. Employers are not allowed to encourage their employees to opt out.

    Communications from the Pension Regulator

    Prior to their staging date, employers will receive a letter from the Pensions Regulator informing them that they need to nominate a contact. The Pension Regulator will then send communications to the contact advising him/her of the actions which the employer needs to undertake.

    Rate of contributions under pension auto enrolment

    From 1 October 2018, when pension auto enrolment has been fully phased in, contributions must be paid into company pension schemes at the rate of at least 8% of relevant earnings. Employers are required to contribute at least 3% and the employee has to contribute the balance.

    Action plan

    For further assistance in this matter, or any other issues relating to owner managed businesses please phone Shacklefords Chartered Accountants on 0121 294 6670 or e mail This email address is being protected from spambots. You need JavaScript enabled to view it.

  • Tax relief on acquiring fixed assets

    For the majority of small and medium sized businesses, tax relief on the costs of buying plant and machinery is obtained through the Annual Investment Allowance.   Plant and machinery includes a variety of capital expenditure, including computer equipment, office equipment, commercial vehicles and shop floor plant and machinery.

    Where assets are acquired under contract hire or leasing, tax relief is received in the periods when payments are made.

    No tax relief is generally available on capital expenditure relating to land and buildings. Intangible assets, such as goodwill and patents, have their own regime for tax relief.

    Annual Investment Allowance (AIA)

    The AIA replaced most other forms of tax relief on plant and machinery in April 2008. Since that date, 100% tax relief has been given on annual expenditure on plant and machinery up to the prescribed level.

    The annual expenditure levels allowed for AIA have fluctuated widely and have been as low as £25,000 per year and as high as £500,000 per year. The current level of annual expenditure is £500,000, but this is due to reduce to £25,000 on 31 December 2015.


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