Can you help me to save tax and generate more income?
Jeff and Shelley had both been working for a number of years as successful self-employed fast food caterers in the Hampshire area.
Although both businesses were thriving, wherever possible both tried to save money and reduce their costs.
Each year their Self-Assessment 1st payment on account became due in January, along with the quarterly VAT and PAYE bills which were costing them around £15,000-£18,000 in total that month.
Even though both were fortunate enough to be in a position where they were able to put money aside throughout the year to pay these amounts, it was still disheartening for them both to see so much money being paid out in one go.
They asked the Keen Dicey Grover team to help.
We looked closely at Jeff and Shelley’s position to see whether there was any way we could help them to reduce the amount they paid to the tax man.
We first looked at the benefits of incorporating Jeff – he being the larger of the two self- employments – to see whether there were tax savings to be had in a company environment.
Our calculations confirmed that there was indeed the potential to pay Jeff a mixture of a small director’s salary and dividends, which, including the company paying corporation tax was going to save approximately £1,750.00 per annum in tax.
Shelley’s business was much smaller, but we applied the same exercise to Shelley’s records to see if any savings could be had in the same way. Again our calculations indicated that there could be as much as £1,000.00 in tax savings to be made for her business also.
By incorporating the two self- employment businesses into two limited companies, those companies would be in effect buying the existing businesses from Jeff and Shelley. This meant that – in the right circumstances – HMRC would agree that those businesses had an unquantified asset in the form of goodwill.
We carried out a goodwill valuation exercise on both businesses and arrived at a figure of approximately £25,000 for Jeff and Shelley’s was around £10,000. If agreed by HMRC (which it subsequently was), this would have meant that each client would be owed the value of the goodwill by their respective companies which they could draw against without having to pay any tax (after the initial one off capital gains tax payment on the sale of the goodwill). This would save them both thousands of pounds in PAYE when compared to drawing an equivalent salary under a PAYE scheme.
A meeting was arranged at the Keen Dicey Grover office, and all of the above points were highlighted to Jeff and Shelley, which they received with great interest.
After discussing all of the tax saving ideas, Jeff and Shelley gave a resounding yes to all of the above and asked for immediate implementation of company formations.
Jeff and Shelley both left with smiles on their faces knowing that they had just had a very successful meeting, delighted that we had been really pro-active. They appreciated that by thinking outside the box, we had offered valuable tax saving advice that could make significant improvements to their quality of life.
Jeff and Shelley were both very surprised by the tax saving potential and never realised that, with a bit of careful tax planning and pro-active forward thinking by their accountants, they could save so much.
They both left feeling that their accountants had demonstrated that they really do care about their clients and go the extra mile to offer the best possible value for money service.