Tax Saving Tips for Small Businesses
Most small business owners regard dealing with Tax Returns as a necessary evil; one of the disadvantages of being your own boss. All that time and effort, and all you get for your trouble is another bill to pay! But, unlike most charges on your business, you can legitimately reduce your tax bill if you familiarise yourself with the rules.
HM Revenue and Customs publish guides covering all aspects of the tax system, and they are helpful in answering individual questions, but they won’t point out that you’ve forgotten to claim certain expenses or suggest ways of using their rules to your advantage. You have to work those things out for yourself, or seek advice from a specialist.
Here are some of the things you need to keep in mind if you want to minimise your tax:
Don’t delay! In most cases, if you file your tax return online you don’t have to do it until the January after the end of the tax year it refers to, so you have almost ten months to deal with it. The temptation is to put it aside, promising that you’ll look at it later when you’re not busy. The danger is that you’ll leave it too late and incur a fine. Also, if you leave it until the last moment you are more likely to make a mistake.
Claim all your allowances. Check those grey areas where the question ‘Can I claim this as expenses?’ is usually answered with ‘It all depends’. Many people find the rules about working from home confusing. You can claim a proportion of your home’s running costs, but you also need to be careful that what you gain from Income Tax won’t be taken by Local Authority business rates. Some lateral thinking can often simplify a situation. For example, one solution to the problem of separating personal and business phone calls is to have a mobile phone in your business name.
Look after the pennies. Your business expenses can include anything you purchase for use in running your business. You’re not likely to forget large or regular payments, but how careful are you about keeping track of the petty cash? A book of stamps here, some cleaning materials there, might not seem worth bothering about. But all those little items could add up to a few hundred pounds to deduct from your yearly turnover. Get into the habit of asking for receipts and noting down every expense straight away.
Know what to do with losses. A healthy profit is the goal of all business owners, but making a loss – especially in the early days – is not all bad news. You can use losses to offset your taxes in several different ways, and sole traders have more options than limited companies. If you’re not sure what would be the best course of action, consulting a tax professional could help you make the most of a difficult time.
Think about VAT. You don’t have to register for VAT if your annual turnover is less than the required threshold (currently £68,000). However, if you do register you can claim back the VAT you pay to your suppliers. You need to decide if the time spent doing extra paperwork is worth the savings you’ll make. If it is, you’ll also have to choose which of several VAT accounting systems will best suit your business.
Keep up to date. Tax rules are constantly changing, but the changes are not always well publicised. To save the maximum amount of tax you often need to know what the rules will be next year as well as those currently in force. For example, if you know new capital allowances rules are going to be introduced simply changing the date on which you plan to invest in expensive new equipment can make a considerable difference to your tax liability.
To take advantage of such changes you need to do your research, which can be time-consuming. Or, you can use the services of a professional bookkeeper whose own business depends on him or her reading all the small print. Don’t forget that professional fees are tax deductible.