Tax saving ideas that every small business should consider

Running and operating a small business is not straightforward and can be difficult to manage. Especially when it comes to paying tax and making sure that everything is in order as it should be. That’s why the team of tax advisors at Contractor Unlimited have provided a list of things that small businesses can do to save on tax.

Decide What Type of Company You Are

Firstly it is very important for you to decide and then make clear what type of company you are. If you are self-employed you must stress this to HMRC and ensure that you don’t work for you customers and are officially designated as self-employed. If you don’t do this you will be subject to a different tax requirement, that means paying considerably more tax. Equally if you are a sole trader, partnership, limited company or limited liability partnership this must be information that is passed to HMRC so that you pay the correct amount of tax in line with the type of company you are. This decision cannot only keep you in line with the law but also save you a lot in tax, as limited companies don’t pay income tax or national insurance.

Take Money Out of the Business

Salaries and Dividends

The obvious way to save money is to make money. This could be with a salary of dividends through your business. the smartest way to save money and pay less tax is giving a spouse or partner their own salary.  There are several ways that are open to you to do this, one is to pay them a salary that is somewhere between £111- £153 per week. This will allow them to qualify for a state pension, whilst at the same tie not paying any tax on that salary. This option can also apply to children. Bear in mind to keep their income under £12’500 per annum as this is the current tax free allowance.

Partnerships

You could make significant employees partners in your small business. This will save you and them some National Insurance.

Investing in Equipment

Investing in tools for your business, regardless if this is a computer or a van, the best time to do this is just before the new tax year begins, as you will receive tax relief much sooner.

Be Aware of Your Finances

Selling Your Business

Start planning early, by doing this you can prevent the taxman from taking up to 59% of what the business is worth.

VAT

If you’re not planning on selling the company, then be smart about VAT. If you earn above £85’000 a year, you are required to be VAT registered. You can monitor your sales to prevent you from going over this figure, if you are likely to go slightly over. Keeping an eye on your overall sales will go a long way to control this.

If your sales are less than £150’000 you may want to pay a flat rate of VAT, this could result in you paying less tax, as well as it being far easier to implement and will save you value time for other tasks.

Tax Relief

You could be permitted to tax relief for the business property, even if it was purchased a long time ago. Reviewing this and keeping up to date could save you a considerable amount of money.

Paying your PAYE and National Insurance quarterly can often lead to savings if your payments are less than £1500.

Making the Most of your Employees

Pension Schemes

Company pension schemes can be a really good way to save money on tax.  It is also a respectable and popular way to support your staff.

Using Company Cars

Staff using their own cars for company business can gain mileage allowances, so make sure to record those accurately. You can pay 45p per mile, tax free. If you are using company cars remember to be aware of the rules for their use by employees and how they can be used away from the business.  So be sure to document and account for the use of these vehicles and it may be helpful to know that pickup trucks are also covered by this.

Tax Credits

Working Tax Credits and Child Tax Credits could be options for your staff if they are employees with low wages. This will not only benefit them but will also benefit you as you may also be able to claim these as an employer. Additionally, childcare vouchers can be used to save Tax and National Insurance for employees with children.

Tax Free Benefits

Tax-free benefits are numerous can could well be available to both you as an employer and your staff. These include: providing mobile phones, subsidising transport, providing creches, health checks, car parking, sports facilities, paying relocation expenses. These benefits are very handy to have and could make a big difference for everyone in the business, so are well worth looking into further.