It’s an ideal time to think about how your business could be more tax efficient but tempting to push taxes to the bottom of your priority list. However, by starting to become more economical now, your business could maximise its yearly profits, giving you more money to invest in the future.
We’ve put together some key tips for your business to reduce its tax bill over the coming 12 months.
Claim on all expenses
Some expenses can be deducted from your tax bill, though these expenses must be incurred wholly and exclusively for the purposes of the business. Allowable expenses include costs related to the business premises, like rent, maintenance and repair. Other expenses include business-related travel, office equipment, business insurance and staff costs.
Whilst you may already be claiming for some, it’s worth refamiliarising yourself with the expenses that the government class as “allowable”, as they can be updated for a new tax year. You may find you’re missing out on tax relief on some of your regular business costs.
Take advantage of allowances
There are a number of allowances that can be claimed for your business, one of the main ones being capital allowance. This allows you to receive tax relief when you buy assets to use as part of your business, such as business vehicles and equipment.
On top of that, because directors of limited companies own shares in the company, they can be paid a set amount of dividends tax-free. This means that they aren’t affected by National Insurance contribution deductions. Despite the dividend allowance reducing from £5,000 to £2,000, it remains a great way to help reduce your tax bill.
Directors can also take a salary which is free from income tax if it is below the threshold of £11,850 – known as your Personal Allowance. Between £11,851 and £46,350 you’ll be taxed at 20%, up to £150,000 is taxed at 40%, and a salary more than this will be taxed at 45%.
Register for a VAT scheme
If your business earns more than £85,000 in a 12-month period, you will need to register for Value Added Tax (VAT). There are a few different VAT schemes available which could make you stay more tax efficient, including the Flat Rate VAT scheme if your taxable turnover is under £150,000 per year. We’ve provided detail around this and the other VAT schemes available in a recent blog post which you can read here.
Make sure you’re paying the right amount of tax
The easiest way you can stay tax efficient is by making sure that your business is paying the correct amount of tax. Your taxes should be kept on top of, not just in time for the Self Assessment tax return deadline, but throughout the year.
Nabarro Poole believe in helping our clients all year round. As small business owners, we understand the importance of tax efficiency. Contact us to learn more – we’d be happy to explore where your current accountancy practices could benefit from a boost.