6 Tax Saving Strategies for Your Small Business

Reducing your bottom line is a vital business strategy, and there will always be various ways in which you can save money. But did you know that tax is one area where you could potentially make savings? Here we set out some of the best ways a business can reduce its tax bill, legally.

1. Use of home as office allowance

If you run your business from home, you are entitled to claim for use of home as office. This is calculated on a flat rate, based on the hours you work from home each month. The flat rate does not include the business proportion of your telephone or internet expenses, which can be claimed separately as actual costs.

Providing you work 25 or more hours per month from home, you can use the flat rate system, meaning you can claim £10 for 25 to 50 hours; £18 for 51 to 100 hours, and £26 for 101 or more hours.

2. Make use of trivial benefits

You can give benefits to employees tax-free, as long as they don’t exceed £50, they are not a performance-related reward, they are not a cash gift and they do not form part of the employee’s contract.

Trivial benefits could be such things as gift vouchers, celebratory meals, flowers or gifts for birthdays or Christmas.

3. Employ a family member

Employing a family member in the business, especially if they have unused personal allowance, is a good way to make tax savings.

It is important that there is a clearly defined role for them, and that there is evidence that they do actually work within the business.

4. Transfer of shares to spouse

Even if you have your spouse on the payroll, you may wish to think about transferring some of the shares in your business to them so that they can draw dividends to use up their tax-free allowance. Higher rate tax payers could potentially save several hundred pounds per year, and reduce their payments on account.

Transferring shares to a spouse carries no tax liability, but if you are thinking about transferring shares to other family members, employees or business partners, then you should take professional advice before doing so to ensure it works in everyone’s best interests.

5. Switch pension contributions to the company

If you run your own company but pay your pension contributions personally, you could save money by switching the payments to the company.

You don’t have to pay anything in personally, and your company can pay up to £40,000 in personal pension contributions, which are a tax-deductible expense. So you are saving your own personal money, as well as reducing your company tax bill. Up to three years worth of unused allowances can be carried forward.

6. Make use of Research & Development Relief

If your company has been doing anything in the past three years that has been technically challenging and that has involved the development or improvement of a product, process or service, then you may qualify for Research & Development (R&D) Relief. You will need to have incurred costs either internally or via outsourcing in order to be eligible.

There are different types of R&D Relief, depending on the size of your company and whether the project has been subcontracted to you.

You can learn more about R&D Relief on the government website.

Need help making tax savings the legal way?

Whilst there are plenty of ways to make tax savings for your business, it is important that you take advice before you go ahead to make sure you are doing things the right way, and that your actions will be beneficial to you.

If you are looking for help making tax savings, we are here to help. Please get in touch to discuss how we can assist.

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