Owning and operating a small business can be expensive when you pay more tax than you need to. Saving money on taxes should be a priority for small business owners.
Here are few simple tips for small business owners to consider:
1. Use your allowance
- Annual Investment Allowance of £200,000 – the full value of expenditure on qualifying plant and machinery up to this limit can be deducted from your profits before tax. Anything in excess can also qualify for capital allowances.
- Personal Allowance of £11,850 – this is your tax free limit before Income Tax is deducted.
- Dividend Allowance of £2,000 – this is the amount that you can get tax-free from your dividend income.
- Capital Gains Exemption of £11,700 – you will only have to pay Capital Gains Tax above the tax-free allowance.
2. Assess your remuneration policy
If you operate as a partnership, you might want to review the allocation of taxable profits between you and your partner. If you operate as a limited company, you need to evaluate the mix and timing of your salary and dividends.
3. Tax planning
Make sure that you assess your profit levels in advance so further action can be taken in order to reduce your tax bill before it’s too late.
For example, having a good bookkeeping system, preferably cloud based like Xero, can make creating and analysing reports easier for you.
4. Pension contributions
Every time you make a pension contribution, the government tops it up with tax relief. For example, to get £100 into a pension, you only need to pay £80 and the government will add £20. Higher rate and additional rate taxpayers can claim extra relief as they pay more tax. This can be claimed via self assessment.
You can pay as much as you like into a pension, but you will only get tax relief if you have earnings that can support the payment being made and it’s within the Annual Allowance limit of £40,000. If you exceed the annual allowance in a year, you will not receive tax relief.
Companies can make contributions on behalf of their employees and directors. They will also save on Corporation Tax at 19%.
5. Tax-deductible expenses
Don’t assume that everything is tax-deductible. There are many tax-deductible expenses which your business can claim for, but travel and subsistence and motoring costs are common areas of confusion. You should consult your accountant to make sure that you are claiming as much as you can on the most appropriate basis.
6. VAT considerations
There are many considerations that should be made in relation to VAT. This includes when to register, which VAT scheme would be the most beneficial for your business, and how VAT impacts your transactions with customers and suppliers.
7. Transfer assets
Transferring any of your savings and investments to your husband, wife or civil partner can help save you tax by utilising their unused allowances and their lower rate of tax.
8. Meet your deadlines
Make sure that your submissions with HMRC are all submitted and paid for on time. This might not be always easy when things aren’t going well but dealing with things as soon as possible gives you and your accountant more time to mitigate and reduce any penalties and interests you might suffer.
9. Plan your exit
Planning your exit strategy well will maximise your chances of realising the best value from your business which you have worked so hard on. A good plan will also allow for a tax-efficient exit which reduces the burden of income, capital and possibly Inheritance Tax.
10. Contact your accountant
Take a step back and talk to us at the earliest opportunity. As your trusted business adviser and accountant, we will help ensure you have fully considered your options that allows you to maximise the tax allowances available to you and help save you money in the long term.