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Menu MenuNavigating the intricate world of business taxation requires a savvy approach to optimize your financial standing and compliance. As a business owner, mastering the art of tax management is essential for sustained growth and profitability. In this first instalment of our Tax Tips Series, we unveil a range of business tax tips that can make a significant impact on your bottom line. Let’s delve into the expert advice tailored to elevate your business and corporate tax game.
Leverage familial connections to your advantage by employing strategic salary payments. If your spouse or civil partner earns below the annual personal allowance of £12,570 and contributes to your business, consider remunerating them. This practice not only lowers your taxable profits but also fosters pension and state benefits credits for them. A weekly wage between £120 and £183, exempt from national insurance, can prove valuable.
Employing your children, aged 13 or older, to contribute to your business presents a golden opportunity. Their income below £12,570 can be transformed into a wage, effectively reducing your taxable profits.
Secure your financial success with proactive planning. Arrange a pre-year-end tax planning meeting with your accountant to ensure timely execution of essential actions. Waiting until year-end might hinder your ability to optimize tax strategies effectively.
For sole traders facing 40% tax and whose spouse or civil partner is a lower-rate taxpayer, consider partnership arrangements. Shifting a portion of profits to them reduces tax liability. Limited Company structures offer the alternative of gifting them shares to distribute dividend income efficiently.
Sole traders earning less than £6,725 yearly can skip Class 2 national insurance but consider voluntary payments for state pension entitlement. Smart financial planning can lead to a secured retirement.
One of the most important business tax tips is to evaluate your business structure carefully. Sole traders and high-rate taxpayers should explore Limited Company options. Consider the benefits of Limited Liability Partnership structures for enhanced financial security.
Timing matters when purchasing assets like equipment and vehicles. Procure these assets just before your year-end to accelerate capital allowance tax relief, often at 100% of their cost in the first year.
Align personal and business loans strategically. Convert personal loans into business loans to enjoy tax relief on interest payments, enhancing your financial efficiency.
Minimize future Capital Gains Tax by spreading business ownership among family members. Ensuring a reduced tax burden upon the eventual sale of your business.
Claim relief for business losses by setting them off against prior-year profits and other income before carrying the balance forward.
Under specific conditions, you can claim tax relief for losses incurred in unquoted company investments by offsetting them against trade profits.
An unusual business tax tip unless you are planning on owning a boat! Unlock potential tax benefits by claiming capital allowances for boats owned by the business and occasionally chartered out.
Working from home? Claim a portion of mortgage interest, utilities, and other related expenses as tax deductions.
Maintain comprehensive records of expenses even without receipts, ensuring accurate business deductions.
Review expenditure allocated for private use annually with your accountant to remain compliant and transparent.
Demonstrate genuine intent to benefit your business when engaging in activities like sponsoring events for tax-deductible expenses.
Lower your tax liability by accurately valuing stock. If its market value is below purchase or production cost, adjusting stock value reduces taxable profits.
For trading businesses held for at least 1 year, selling qualifies for a 10% Capital Gains Tax rate on the first £1 million of gains, subject to review of trading duration.
Employ a balanced approach of low PAYE salary and dividends for optimal extraction of funds from a limited company.
Ensure dividends are properly documented with board resolutions and dividend vouchers to prevent reclassification issues.
To access tax relief for purchased goodwill, operate through a limited company, not as a sole trader or partnership.
Transform senior employees into partners to reduce employers’ national insurance liabilities and boost employee engagement.
Extract funds efficiently through royalties, interest payments, or asset sales, capitalizing on annual exemptions.
Analyze the merits of personal vs. company ownership for your business property to maximize tax efficiency.
Mitigate IR35 implications by adopting the necessary measures to avoid national insurance and PAYE obligations on a substantial portion of earnings.
Mastering these diverse business tax tips strategies arms you with the knowledge to navigate the intricate world of corporate taxation effectively. The implementation of these insights can yield substantial savings, enhanced financial security, and compliance. Stay tuned for our upcoming Tax Tips Series articles, where we’ll delve into more tailored advice to further elevate your financial acumen. Next up will be our personal tax tips, followed by VAT tips, and then employer tax tips. Consult with your trusted tax professional to tailor these strategies to your unique circumstances and embark on a journey toward financial prosperity and peace of mind.
About Us Our Prices Instant QuoteDelving into taxes when it concerns your business can always be a daunting time, and it is not always the most exciting part. However, it always needs to be dealt with at some point. To help you get started, we have gathered a few little tips to guide you on your way.
In this day and age, dealing with taxes can be complex. And whether your business is just starting out, or has been around for a few years, it can always be tricky to establish what is available to you, what you are entitled to, and your financial affairs. Before we get started if you are looking for some in-depth tax-saving tips from online accountants, then have a look at our range of free resources from special tax reports, tax calculators, and tax helpsheets. We can even email these directly to you (promise we won’t spam you).
One of the first and most important tips we can give you is to always meet your deadlines. Organisation is essential to any workplace. Any delayed filing with Companies House paperwork (confirmation statement), HMRC, FCA, and other regulatory accounts, can result in fines and other consequences. For a business, this can have devastating impacts as can affect your credit rating and banking commitments.
There are many documents you need to keep organised when you are running a business and keeping organised will reduce any hassle. It is also a great idea to map out future dates you need to be aware of. For instance:
Furthermore, make sure you always keep a copy of your documents, such as invoices and receipts in a safe place. According to HMRC, these business records need to be kept for six years, so keep them secure and protected. Also, records and receipts are needed from HMRC to expense claims or input VAT amounts, so make sure your business keeps proper supporting records.
Make sure you claim anything you are entitled to such as ‘Capital Allowances’ to help with your business rates. Our friendly group of online accountants can talk you through this. Capital allowances can be claimed against taxable profit, meaning you can receive a reduction in capital expenditure such as business equipment. For example, there are:
AIA is available for British businesses, and is a form of tax relief designated for the purchase of business equipment. AIA applies to businesses of any size, and allows an immediate deduction against profits for capital expenditure up to a certain limit. Most businesses can claim on a portion of expenditure to most types of plant and machinery (except cars).
ECAs encourage business to invest in efficient and environmentally friendly equipment. This scheme allows you to claim 100% first-year allowances such as tax relief in efficient technologies. This will not only reduce investment costs, but your environmental impact. All in all, this will improve your cash flow and the time it takes to pay back your investment. However keep in mind, this can only be claimed for new plant and machinery, not second-hand or used.
Make sure you do some research to find out exactly what you are entitled to. There are multiple options out there that will benefit you and your business, to which you are 100% entitled to.
If you are working from home, or a self-employed business owner you may be able to claim tax relief for:
Furthermore, you can claim a fixed nominal sum of £6 a week with no evidence of your extra costs. There can be many generous tax savings for those of you who work from home. So make sure you research and are aware of them.
Dividends are payments for shareholders, directors, or investors for buying the company’s shares or stocks. Any company can pay dividends from retained profits after paying corporation tax and have met all liabilities. However, be aware of illegal dividends, or ‘Ultra Vires’. This can occur after declaring expenses based on bank balance rather than profits, yet dividends should only be paid from profits. Unfortunately, this is not unusual and can result in an overpayment and is costly to sort out at a later date.
Of course there is a lot of information out there which is time consuming, as well as being tricky to navigate. Here at CloudBook Online Accountants, we want to make your life easier. We will work with you from the start to the very end of the year and will assist and support you every step of the way. Whether you are a UK based sole trader, small or medium business owner or property investor. We will help get your finances on track and help you stay organised with an easily reachable, friendly and qualified online accountant.
So, we hope you have discovered some new information about tax and your business. Get in contact with us if you have any questions, or are interested in any services from our online accountants.
About Us Our Prices Instant QuoteOur sole trader vs limited company calculator shows how much tax you can save trading as a limited company. The link to our sole trader vs limited company tax calculator is below. Just complete the first 3 boxes, then go down and click calculate my tax. But first, remember there are factors other than tax to consider when comparing a sole trader vs limited company. See below for most of these factors.
There are many other advantages to trading as limited company which are explained below. Our tax calculator is just three clicks away.
Dividend taxes increased in April 2016 by 7.5%. This slightly reduces the tax savings made by incorporating. However, you still save tax trading as a limited company until profits are very high. Also, you can save even more tax using a company by splitting the ownership of it. Then you can split the dividend income you take from the company. For example, if you and your spouse own 50% each you would normally share the income 50% each.
Dividend taxes increased by a further 1.25% in April 2022. However, you can still save tax using a limited company. See ‘Will I pay less tax as a limited company‘ for some examples.
Let’s look first at the different types of business structure you can choose.
This is the simplest form of business to start. You simply carry on business on your own account. As a sole trader you pay income tax and Class 4 National Insurance on your net profit. You can employ people including your spouse. But you must only pay them for the value of the work they actually perform.
A partnership is two or more people carrying on business together with a view to making a profit. The partners in a partnership are all joint and severally liable for partnership debts. So if anything goes wrong, each partner’s personal wealth is at risk. Personal tax bills are based on the share of partnership profits. It is advisable to have a partnership agreement to document the business arrangement between the partners. This would include how you share profits and how partners will join and leave the partnership. Even a husband and wife partnership should have a written partnership agreement. You can use this to show HMRC that both parties have a right to share the profits.
A limited company is a separate legal entity from its owners. These are the basic facts…
Remember there are factors other than a Sole Trader vs Limited Company tax calculator to consider. This calculator now includes the new dividend tax rates which started in April 2022. Ask us for further advice on whether you should trade as a sole trader vs limited company. We offer a free company incorporation service for all of our clients including new ones. Our accountancy fees are from £50pm for companies.
Talk to us. We’ll help you consider the other factors not just the result of the sole trader vs limited company tax calculator. We’ll advise you on whether you should trade as a sole trader vs limited company. Ready to choose between a sole trader vs limited company? Contact us about our accountancy services from £22pcm. Or go straight to our free new company registration form. We don’t charge to register your new company. But there’s a £12 fee payable to Companies House and you’ll have to pay your first monthly fee towards your company accounts.
We can help you too. Our sole trader services start from £22pm including accounts, tax return and reviews. Or if you do your own accounts we can do the tax return for you from £55pa.
If you’ve incurred business expenses which you haven’t got receipts for, you’ll probably be wondering what can I claim without a receipt? So you’d go and ask your accountant, right?! After all, good accountants like us, with low monthly fixed costs could save you more in tax than their fees. Specific advice on which expenses you can and can’t claim for is included in all of our online accounting services from £20pcm. See all of our low monthly fixed fees or use our accountancy fees calculator to get a quote for your business accounts, tax returns, bookkeeping and payroll.
About Us Our Prices Instant QuoteIn summary, if you pay for something necessary for running your business (i.e. business expenses) you can usually claim an income tax deduction for it. However, there are some expenses that are specifically blocked (e.g. entertaining contacts), and others that may be at least restricted. So if in doubt, ask your accountant.
Make sure you keep as much of a record as possible and preferably a receipt of it to support your claim for it as tax deductible business expenses.
Normally, you’ll get a receipt but many people think that if they haven’t got a receipt they can’t claim for it – not true. It’s often the little items of business expenses that are not claimed, but over a year they can add up to a few thousand pounds, just as smoking a pack of cigarettes every day does.
As an aside, with over 80% of the price of cigarettes just tax, another tax saving device is to stop smoking!
The test is whether you can satisfy HMRC that you incurred the business expenses.
So, if you pay for something in cash but don’t have a receipt, still record it and anything that would help satisfy the HMRC you incurred the business expenses.
You buy a piece of equipment in cash from a nomadic traveller for £300 who won’t give you a receipt. Still record what you bought, when, from whom and how much you paid. You have this item of equipment that you can prove if necessary because it physically exists. You must reasonably have purchased it and so by noting a few details down, it will help to satisfy HMRC.
The same is true for anyone who wants paying in cash and didn’t give you a receipt. If it’s business expenses, you’re entitled to claim it so long as you can satisfy a reasonable tax inspector. The more information you have, the better. This is not the case if you want to reclaim any VAT charged on the item as different rules apply (see below).
Small items of business expenses you might not have receipts for, such as car parking.
If you haven’t kept a record there’s no reason why you can’t estimate on a sensible basis, how much you’ve spent over the year. If you calculate it sensibly, you can satisfy HMRC. It would of course be better to record them as you go to avoid any debate over it.
For VAT purposes you only
claim back VAT on business expenses without a VAT receipt if you are VAT registered and they are under £25 for…
1. Car parking apart from on-street meter parking which is outside the scope of VAT.
2. Phone calls from public or private telephones.
3. Purchases from coin operated machines.
4. Road tolls.
If you’re still wondering what business expenses I can claim, ask your accountant, or contact us using our enquiry form to ask about our services which include this advice. If we do your accounts and/or tax for you, we’ll help to ensure you have claimed everything you can.
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