Tax effect of Equipment and training costs

I have often been asked about the Tax effects of Equipment and training costs to the one person owner/director/worker limited company.

Firstly the tax effect is that if the corporation tax rate is 19% (as it is currently) then the actual net cost to the company is 81% of what is paid for the equipment.

Say the equipment/training is £1,000 and you choose not to spend the money, then your company will have £1,000 additional profit so pay £190 corporation tax.

If you are a Higher Rate Taxpayer then take what is left as dividends, you will pay income tax on those £810 dividends of 32.5% ie £263.

Therefore in summary not to spend £1000 on equipment/training will normally lead to a £453 tax bill for a higher rate taxpayer. The real cost of £1000 expenditure here then, will be net £547.


In addition, the more your company spends on equipment and training, the stronger your IR35 position will be.

By graeme on May 13, 2011

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