Assuming you qualify as a "small business" (presumably, yes?), then you can claim (up to) 100% Capital Allowances - this is not the same as reducing your tax liability by 1500 -2000.
Many, many thanks for your kind advice. We are currently "between accountants" at the moment so things are a bit up in the air.
I wonder if anyone has any idea about this, more complicated, question:
I have been advised by another Ltd. Company owner of a method of reducing tax payments. He owns two companies - each making profit. At . . . "suitable" times of year he transfers money from one company to the other ? this way not showing such a high profit and reducing tax payments.
When I first heard of this I was very sceptical and immediately pointed out that there must be some illegality involved. It was then he told me that it was HIS OWN ACCOUNTANT that advised him to operate in this manner.
Can anyone comment or explain this a little better.
Company A has accounting date 30/6 and Company B has accounting date 31/12.
On (say) 29/6/2003, company A transfers X to company B so that "profit" at
30/6/2003 for company A is slight.
Now company B is "cash-rich", and makes even more profit, but on (say)
30/12/2003, company B transfers Y to company A - so that "profit" at
31/12/2003 for company B is now also small. [Y obviously being X *plus* the profit made by company B over the year.]
Then, on 29/6/2004, company A transfers Z to company B so that "profit" at
30/6/2004 for company A is again slight ...
Even though the companies are "associated", hence sharing tax bands (eg the
10,000 tax-free profit band), each is showing a profit close to zero and hence paying very little tax?
I would think that this might help to "roll-up" profit from year-to-year, but how do you "get the money out"? Dividends may not be possible - as there's no profit to cover them. But you don't need profit to pay salary, do you? ...
Is this really possible? I can hardly believe that the Inland Revenue would allow it to happen....
It is possible to come up with this situation so that profits are always pushed forward. The point is that these charges are not genuine so the Inland Revenue would disallow them when they notice what is happening.
Do you mean "Yes, that's how it's done but sooner or later the piper will want paying", or do you mean "Yes, that's one way of doing it, but it's stupid because it won't really work, and there is a much better way but my lips are sealed"?
Surely a company can't just "transfer" money to reduce its profit. The transfer would need to be associated with genuine expenditure in order for it to work. Would selling stuff to each other to mirror the cash movements lend a veil of respectability to the scam?
Mmmmm - I see what you all mean. Very interesting.
What if, for example, two friends owned completely independent companies (Ltd.) and made charges to and from each company for contracts/labour etc? (What about husband and wife?).
I imagine this would become . . . obvious after a while and should not take long to get investigated(?).
Col.
P.S. I fully appreciate this message thread is for interest/discussion purposes only and not for any unlawful means.
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