If you run a small business, says Business advisor and author of The Startup Coach, Carl Reader, there are plenty of ways that you can save some money on your tax bill.
If you run a small business, there are plenty of ways that you can save some money on your tax bill. Even though you are probably too small to benefit from tax avoidance schemes that can be as dodgy to use as they are expensive to set up, there are some simple things that you can do to make sure that you don’t pay a penny more tax than you legally have to.
Review the structure of your business
In the past, there was a great rush of small businesses forming limited companies to take advantage of the low corporation tax rates and the lack of National Insurance on dividends. Whilst the new dividend tax has reduced the difference between being taxed personally and being taxed through a company, there are still some advantages and savings to be had by using a limited company.
Record EVERY single expense
Both your accountant and the tax office only know what you tell them about your business. If you forget expenses that haven’t been recorded, there is little chance that you will get the tax relief on them. Remember that neither has a crystal ball! If you record every expense as it happens, you reduce the chances of forgetting about the costs when it comes to tax season.
Think about extra expenses that you can claim
Not all business expenses are immediately obvious. Do you perform some clerical work at home for your business, such as typing up letters or keeping the accounts in order? If so, you can claim some of your household bills against your profit. There are different levels, and the tax office expects you to allow a “reasonable” amount for this. It’s important to take advice in this area to make sure that you put in the right amount, and don’t short change yourself.
File your tax returns on time
Your business and personal tax returns always need to be filed on time to avoid nasty surprises such as late payment surcharges, penalties and interest. Each type of return has a different regime, so for example the penalties for filing a VAT return late is different to the penalties that apply to a personal tax return. Regardless of these differences, even one pound paid in penalties is a pound that should be in your pocket.
Think about your share structures if you run a company
This is where things can get a little bit tricky! If your partner or spouse is involved in the business, you should think about whether they should be a shareholder in the business. If you are a higher rate taxpayer, this may help you reduce your families tax bill by paying them for the work that they are doing. As with the extra expenses, this is an area where advice should end up paying for itself.