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Can I use work on business ideas to reduce my tax burden?
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I run a software consultancy which turns over approximately £250k per year. My work mainly involves by-the-hour consultancy or some fixed-price projects but no stock and very few expenses.
In addition to that work I also have a couple of nascent business ideas which currently earn no revenue but I still do (obviously unpaid) work on. These are mostly SaaS products that haven't got to market yet.
Is there any way I can use my labour on these projects to offset my company's tax burden as an investment? Perhaps by including them as assets, by charging the labour to the company or by some other method?
taxes united-kingdom small-business
asked 9 hours ago
SteveSteve
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I run a software consultancy which turns over approximately £250k per year. My work mainly involves by-the-hour consultancy or some fixed-price projects but no stock and very few expenses.
In addition to that work I also have a couple of nascent business ideas which currently earn no revenue but I still do (obviously unpaid) work on. These are mostly SaaS products that haven't got to market yet.
Is there any way I can use my labour on these projects to offset my company's tax burden as an investment? Perhaps by including them as assets, by charging the labour to the company or by some other method?
taxes united-kingdom small-business
asked 9 hours ago
SteveSteve
1061 bronze badge
New contributor
Steve is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
The answer is likely to need to take into account the specifics of your business(s). Have you asked your tax accountant about this?
– Lawrence
9 hours ago
add a comment
|
I run a software consultancy which turns over approximately £250k per year. My work mainly involves by-the-hour consultancy or some fixed-price projects but no stock and very few expenses.
In addition to that work I also have a couple of nascent business ideas which currently earn no revenue but I still do (obviously unpaid) work on. These are mostly SaaS products that haven't got to market yet.
Is there any way I can use my labour on these projects to offset my company's tax burden as an investment? Perhaps by including them as assets, by charging the labour to the company or by some other method?
taxes united-kingdom small-business
asked 9 hours ago
SteveSteve
1061 bronze badge
New contributor
Steve is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
I run a software consultancy which turns over approximately £250k per year. My work mainly involves by-the-hour consultancy or some fixed-price projects but no stock and very few expenses.
In addition to that work I also have a couple of nascent business ideas which currently earn no revenue but I still do (obviously unpaid) work on. These are mostly SaaS products that haven't got to market yet.
Is there any way I can use my labour on these projects to offset my company's tax burden as an investment? Perhaps by including them as assets, by charging the labour to the company or by some other method?
taxes united-kingdom small-business
taxes united-kingdom small-business
asked 9 hours ago
SteveSteve
1061 bronze badge
New contributor
Steve is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
asked 9 hours ago
SteveSteve
1061 bronze badge
New contributor
Steve is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
asked 9 hours ago
SteveSteve
1061 bronze badge
New contributor
Steve is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
asked 9 hours ago
SteveSteve
1061 bronze badge
asked 9 hours ago
SteveSteve
1061 bronze badge
1061 bronze badge
New contributor
Steve is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
New contributor
Steve is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
The answer is likely to need to take into account the specifics of your business(s). Have you asked your tax accountant about this?
– Lawrence
9 hours ago
add a comment
|
The answer is likely to need to take into account the specifics of your business(s). Have you asked your tax accountant about this?
– Lawrence
9 hours ago
The answer is likely to need to take into account the specifics of your business(s). Have you asked your tax accountant about this?
– Lawrence
9 hours ago
The answer is likely to need to take into account the specifics of your business(s). Have you asked your tax accountant about this?
– Lawrence
9 hours ago
add a comment
|
1 Answer
1
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Probably not. In general you can only deduct expenses you actually pay, and your own labor is not an expense. You could hire someone else to do the work and then the amounts you pay them would be deductible expenses. Your suggestion of paying yourself to do the work probably won't help you, as then you have additional personal income to pay tax on. Depending on how your business is structured, it may not even matter how much the business pays you, since you'll probably pay similar amounts of tax on business profit as personal income. If anything, usually it's more beneficial for the business to pay you less rather than more. And if it were beneficial for the business to pay you more, then as the owner you could do that regardless of if you work these extra hours or not.
Disclaimer: I'm not familiar with UK tax laws, and this answer is relevant for the US. I suspect the concepts are very similar though. (And skimming through the UK business expenses rules confirms my suspicion.) In general, if you could deduct your personal time from business expenses, suddenly every owner would be claiming they work 100 hour weeks... ;) By the way, the same reasoning applies for why you also can't deduct time you spend when you do free consulting for non-profits.
answered 8 hours ago
TTTTTT
32.3k4 gold badges65 silver badges102 bronze badges
As someone who is familiar with UK tax in general, this was my intuition too. However I don't have a detailed knowledge of all the different marginal tax rates to be sure about the differences between paying taxes on personal labour versus business profits.
– Ganesh Sittampalam♦
6 hours ago
@GaneshSittampalam but even so, as the owner you can control that ratio regardless.
– TTT
6 hours ago
add a comment
|
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1 Answer
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Probably not. In general you can only deduct expenses you actually pay, and your own labor is not an expense. You could hire someone else to do the work and then the amounts you pay them would be deductible expenses. Your suggestion of paying yourself to do the work probably won't help you, as then you have additional personal income to pay tax on. Depending on how your business is structured, it may not even matter how much the business pays you, since you'll probably pay similar amounts of tax on business profit as personal income. If anything, usually it's more beneficial for the business to pay you less rather than more. And if it were beneficial for the business to pay you more, then as the owner you could do that regardless of if you work these extra hours or not.
Disclaimer: I'm not familiar with UK tax laws, and this answer is relevant for the US. I suspect the concepts are very similar though. (And skimming through the UK business expenses rules confirms my suspicion.) In general, if you could deduct your personal time from business expenses, suddenly every owner would be claiming they work 100 hour weeks... ;) By the way, the same reasoning applies for why you also can't deduct time you spend when you do free consulting for non-profits.
answered 8 hours ago
TTTTTT
32.3k4 gold badges65 silver badges102 bronze badges
As someone who is familiar with UK tax in general, this was my intuition too. However I don't have a detailed knowledge of all the different marginal tax rates to be sure about the differences between paying taxes on personal labour versus business profits.
– Ganesh Sittampalam♦
6 hours ago
@GaneshSittampalam but even so, as the owner you can control that ratio regardless.
– TTT
6 hours ago
add a comment
|
Probably not. In general you can only deduct expenses you actually pay, and your own labor is not an expense. You could hire someone else to do the work and then the amounts you pay them would be deductible expenses. Your suggestion of paying yourself to do the work probably won't help you, as then you have additional personal income to pay tax on. Depending on how your business is structured, it may not even matter how much the business pays you, since you'll probably pay similar amounts of tax on business profit as personal income. If anything, usually it's more beneficial for the business to pay you less rather than more. And if it were beneficial for the business to pay you more, then as the owner you could do that regardless of if you work these extra hours or not.
Disclaimer: I'm not familiar with UK tax laws, and this answer is relevant for the US. I suspect the concepts are very similar though. (And skimming through the UK business expenses rules confirms my suspicion.) In general, if you could deduct your personal time from business expenses, suddenly every owner would be claiming they work 100 hour weeks... ;) By the way, the same reasoning applies for why you also can't deduct time you spend when you do free consulting for non-profits.
answered 8 hours ago
TTTTTT
32.3k4 gold badges65 silver badges102 bronze badges
As someone who is familiar with UK tax in general, this was my intuition too. However I don't have a detailed knowledge of all the different marginal tax rates to be sure about the differences between paying taxes on personal labour versus business profits.
– Ganesh Sittampalam♦
6 hours ago
@GaneshSittampalam but even so, as the owner you can control that ratio regardless.
– TTT
6 hours ago
add a comment
|
Probably not. In general you can only deduct expenses you actually pay, and your own labor is not an expense. You could hire someone else to do the work and then the amounts you pay them would be deductible expenses. Your suggestion of paying yourself to do the work probably won't help you, as then you have additional personal income to pay tax on. Depending on how your business is structured, it may not even matter how much the business pays you, since you'll probably pay similar amounts of tax on business profit as personal income. If anything, usually it's more beneficial for the business to pay you less rather than more. And if it were beneficial for the business to pay you more, then as the owner you could do that regardless of if you work these extra hours or not.
Disclaimer: I'm not familiar with UK tax laws, and this answer is relevant for the US. I suspect the concepts are very similar though. (And skimming through the UK business expenses rules confirms my suspicion.) In general, if you could deduct your personal time from business expenses, suddenly every owner would be claiming they work 100 hour weeks... ;) By the way, the same reasoning applies for why you also can't deduct time you spend when you do free consulting for non-profits.
answered 8 hours ago
TTTTTT
32.3k4 gold badges65 silver badges102 bronze badges
Probably not. In general you can only deduct expenses you actually pay, and your own labor is not an expense. You could hire someone else to do the work and then the amounts you pay them would be deductible expenses. Your suggestion of paying yourself to do the work probably won't help you, as then you have additional personal income to pay tax on. Depending on how your business is structured, it may not even matter how much the business pays you, since you'll probably pay similar amounts of tax on business profit as personal income. If anything, usually it's more beneficial for the business to pay you less rather than more. And if it were beneficial for the business to pay you more, then as the owner you could do that regardless of if you work these extra hours or not.
Disclaimer: I'm not familiar with UK tax laws, and this answer is relevant for the US. I suspect the concepts are very similar though. (And skimming through the UK business expenses rules confirms my suspicion.) In general, if you could deduct your personal time from business expenses, suddenly every owner would be claiming they work 100 hour weeks... ;) By the way, the same reasoning applies for why you also can't deduct time you spend when you do free consulting for non-profits.
answered 8 hours ago
TTTTTT
32.3k4 gold badges65 silver badges102 bronze badges
edited 6 hours ago
answered 8 hours ago
TTTTTT
32.3k4 gold badges65 silver badges102 bronze badges
answered 8 hours ago
TTTTTT
32.3k4 gold badges65 silver badges102 bronze badges
answered 8 hours ago
TTTTTT
32.3k4 gold badges65 silver badges102 bronze badges
32.3k4 gold badges65 silver badges102 bronze badges
As someone who is familiar with UK tax in general, this was my intuition too. However I don't have a detailed knowledge of all the different marginal tax rates to be sure about the differences between paying taxes on personal labour versus business profits.
– Ganesh Sittampalam♦
6 hours ago
@GaneshSittampalam but even so, as the owner you can control that ratio regardless.
– TTT
6 hours ago
add a comment
|
As someone who is familiar with UK tax in general, this was my intuition too. However I don't have a detailed knowledge of all the different marginal tax rates to be sure about the differences between paying taxes on personal labour versus business profits.
– Ganesh Sittampalam♦
6 hours ago
@GaneshSittampalam but even so, as the owner you can control that ratio regardless.
– TTT
6 hours ago
As someone who is familiar with UK tax in general, this was my intuition too. However I don't have a detailed knowledge of all the different marginal tax rates to be sure about the differences between paying taxes on personal labour versus business profits.
– Ganesh Sittampalam♦
6 hours ago
As someone who is familiar with UK tax in general, this was my intuition too. However I don't have a detailed knowledge of all the different marginal tax rates to be sure about the differences between paying taxes on personal labour versus business profits.
– Ganesh Sittampalam♦
6 hours ago
@GaneshSittampalam but even so, as the owner you can control that ratio regardless.
– TTT
6 hours ago
@GaneshSittampalam but even so, as the owner you can control that ratio regardless.
– TTT
6 hours ago
add a comment
|
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The answer is likely to need to take into account the specifics of your business(s). Have you asked your tax accountant about this?
– Lawrence
9 hours ago