Tax planning: The most important things for small businesses to consider
Effective tax planning is something of a hurdle for businesses of any size, but for small businesses in particular it can be a real obstacle course. There are many pitfalls to avoid, but finding your way through them and ensuring that you only pay what is necessary is easier than it may seem. It is highly likely to prove worthwhile – individuals and businesses in the UK overpay billions in tax every year simply because of a lack of planning and awareness.
Planning tax carefully will not only save money that can be reinvested into a business, it will also ensure compliance with regulations. Here are the main things that small businesses need to consider in order to remain efficient and keep tax payments under control.
It’s crucial for small businesses not to see tax planning as something to be done once a year, hurriedly completing tax returns and accounts in the run-up to a deadline date. Entrenching tax into business practices year-round will lessen the risk of mistakes and increase the financial benefits. Keeping on top of the books regularly has never been easier, with our tax planning service helping to identify areas where you might be able to make savings.
Look carefully at VAT
If your business turns over less than £150,000 per year, it may be worth considering joining the VAT Flat Rate scheme. Under this system, you pay a fixed percentage to HMRC depending on your industry (this is currently no higher than 14.5%). This allows you to keep the difference between the VAT you charge your customers and what you pay quarterly to HMRC. With low percentages imposed across many industries, it’s possible for your business to be thousands of pounds better off per year.
Check your classification
Your business could be costing itself unnecessarily, simply by placing itself under a classification that doesn’t best serve its needs. For sole traders or partnerships, there are considerable tax benefits to setting up a limited company. This will put your profits under Corporation Tax, which is significantly lower than Income Tax and National Insurance (although these will still be due on anything you take out as a salary).
Stay across deductions
If you’re running a small business, you’ll already have an idea of which expenses are tax deductible and which are not. However, it’s well worth taking the time to look at this in detail and ensure you never fail to claim on even the most minor expense. What may seem excessive will pay off – before long, 20p per pound to start adding up if you’re maximising every opportunity. If you are a sole trader, consider the tax deduction benefits of working from home, as these could offset some of your personal household expenses too.
Pay yourself correctly
If you run a small business, not only does the amount you pay yourself have an impact on the tax you pay – the payment method for your and your employees does, too. In addition to salary, dividends and benefits in kind such as a company car need to be carefully considered. Both are efficient systems that can potentially save tax, but they must be monitored closely in order not to breach HMRC regulations.
Seek professional advice
In tax planning, expert advice is sure to prove a highly beneficial investment. Should you be in need of a qualified accountant in order to ensure that you are fulfilling obligations correctly, please feel free to contact us to discuss your individual needs.