Running a small business often means money is tight, says Carl Reader, partner at d&t chartered accountants, author of The Start Up Coach and business expert.
As with any business, money must be looked after carefully – there’s no room for wastage. Tax is always going to be an inevitable outgoing, but if you run a small business, there are plenty of ways that you can save some money on your tax bill – and do this legally.
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.
Firstly, make sure you record every single expense you possibly can
Neither your accountant nor the tax office have a crystal ball. Their knowledge of you is limited by what you tell them about your business. Remember, they can’t possibly know what you haven’t told them, so if you don’t record expenses, there is very little chance you can get the tax relief you are probably more than likely to be entitled to on them. Make sure you record every expense as it happens – there are plenty of useful apps and tools for this now – and stop relying on human memory to remember costs. When it comes to tax season, having a pre-prepared list of your expenses saves you plenty of stress and probably money too.
Make sure you think about extra expenses that you can claim for too – not all business expenses are immediately obvious. For example, perhaps you perform some clerical work at home for your business, such as typing up letters or keeping the accounts in order? If you do, there may be scope for you to 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 from your accountant in this area to make sure that you claim the right amount, and don’t short change yourself.
Is the structure of your business the best it can be?
Previously, many small businesses rushed to form limited companies in order to take advantage of low corporation tax rates and the lack of National Insurance on dividends. Whilst dividend tax changes have 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 – or at least looking into other options. Talk to your accountant who will be able to discuss alternative possibilities with you to see how changing your business structure can potentially save you money on tax.
Avoid penalty costs – file your tax returns on time
Every pound you have to pay in late fees or penalties is a pound that should be in your pocket. Avoid nasty surprises like late payment surcharges, penalties and interest by making sure your business and personal tax returns are always filed on time. 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, every single penny paid out that you don’t need to is a penny that could be saved. Be efficient and organised, talk to your accountant to ensure you’re on top of everything and avoid unnecessary outgoings.
What about your business’s share structures?
If you run a business, this is where things can get a little bit tricky – but can save a decent amount! If your partner or spouse is involved in the business, you should consider whether they should be a shareholder in the business. If you are a higher rate taxpayer, this may help you reduce your family’s 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 – and I would definitely recommend seeking out professional advice on this one.
Your accountant is your business’s best tool to saving money. They can give you the best financial and tax advice, based on your unique business situation, as well as helping you to stay on top of everything. This way, you can avoid unnecessary outgoings, fees and stress. Talk to us today to start saving money for your business.
d&t are a multi-award-winning, bfa–affiliated chartered accountancy practice with over 2500 clients across the UK. Based in Swindon, we serve business and individual clients with a range of professional accountancy and business advisory services, all designed to help new and established businesses maximise their growth potential. At d&t, we do far more than just “the numbers”. We’re proud to say that compliance and tax returns are only part of what we offer. With over 25 years of experience, our friendly team work proactively with you to understand your needs and drive your business forward. Talk to us today to find out how we can help your business achieve your goals.