If your business is growing (um, that’s exciting!) and you need to hire an employee to help ease the workload, you should absolutely do that.
However, if the only reason you’re planning to hire an employee is because you want to claim the wage you pay them as a business expense, and therefore lower your tax bill, you might want to reconsider that plan of action.
An employee is a (metaphorical) asset, not an expense
It could be useful to think of any employee you hire as a business asset (metaphorically of course), not a business expense.
When you make the big decision of employing an extra set of hands to help you get work done, you’re investing in the growth of your business because, potentially, you could start taking on more work than you might’ve been able to cope with on your own.
Scaling is a good thing, but it doesn’t mean it’s an effective way to save on your tax bill. Unless your revenue is higher than the amount you’re paying for their wage, the maths won’t work in your favour (maths has pretty strict rules, we’re sorry to say).
Employee wages aren’t tax refunds
Wages are tax deductible, yes, but they only work to lower your taxable income. This reduces the tax you ultimately owe, but you won’t be getting a refund for the wage you paid your new employee, is what we’re getting at.
Essentially, the tax savings you make are far less than what you’ve already spent on wages. So if you’re hiring employees thinking it equals out tax wise, it very much doesn’t (sorry to be the bearer of bad news!).
Whatever you decide, if you use Hnry, we’ll manage all those business expense claims for you, and ensure your tax bill is reduced in a way that is both effective and legal – which is honestly as good as it gets.
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