10 Ways That You Can Save Tax
Like it or not, we all have to pay tax and for small businesses it can be a complicated area.
For that reason alone, it makes sense to take the time to work with your accountant, who will be able to give you some dos and don'ts and will usually be able to help you find ways to some money on your tax bill.
Here at Accountants Etc, we share what we think are ten of the best ways that small business owners can pay less tax. It is not rocket science, but it could help you in the long run, and it should help you to run your business more efficiently.
1. Spend more time doing what you do best
Too many small businessmen and women attempt to keep on top of their own bookkeeping and VAT returns. It may seem like a good idea in principle, but are you really the best person to be doing that? Why not let your accountant look after that side of things, leaving you to focus on what you know best and what you do best, namely running your business. Yes, you will have to pay fees, but it is 99% certain that your accountant will be able to find ways to save you money. Too many small firms fail because the people who run them try to take on too much. Let the experts do what they do best and lift the weight from your shoulders.
2. Understand VAT
VAT can be a minefield if you don't understand it properly. It is vital that you make sure you are paying the right amount. For the right business, the Flat Rate VAT scheme can help you to make more profit. Under the flat scheme you pay a single, flat rate of VAT on your turnover. HMRC have a list of the flat VAT rates available for different industries. Estate agents pay 12%, while computer and IT consultants will pay 14.5%. Choose the rate that is most applicable for your industry, apply the percentage to your gross turnover in the quarter and pay this to HMRC
You can’t usually reclaim the VAT on your purchases but you can keep the difference between the VAT you charge your customers (usually 20%). HMRC even allow you a 1% discount in your first 12 months of registration.
3. Know your business area
Many businesses fail because those who run them attempt to do everything themselves. Don't. Learn from the mistakes of others who have experienced the same problems that you face on a daily basis and let them help you - for instance, get involved with your relevant trade body or association, attend their events, and read the newsletters. Most industries have special dispensations and allowances approved by HMRC, such as uniform allowances. Find out what you are entitled to.
4. Can you work from home?
You may not feel it, you may not believe it, but HMRC is not your enemy and will allow tax savings for self-employed businesses that spend time working from home. Make sure you are aware of them. If you don't know what they are, your account certainly does.
Most small businesses claim a modest use-of-home charge but if you are a self-employed business owner, you can claim for a proportion of all sorts of things, including council tax, mortgage, insurance, heating and lighting, water, landline and mobile phone costs, and general household repairs and maintenance.
5. Keep talking
Many small business owners have some pretty unkind things to say about their accountant. Why? He or she is there to help you and advise you. If you accept that your accountant is somebody you can trust, somebody who can help save you tax it is like having an extra employee who does all the nasty little jobs you don't want to do. Talk to your accountant, and make sure that your accountant talks to you. Don't keep things to yourself.
6. Get your staff on side
Did you know that there are tax-free benefits you can pay to your employees that will save tax for both them and you? The cycle to work scheme has been in operation for several years and can save up to 25% of the cost of a new bike, as well as making tax savings, but few organisations take advantage of it - it helps to reduce pollution and there are huge health benefits for everybody who takes advantage of it. Small businesses in particular have been very slow on the uptake. Or what about tax-free childcare vouchers? They are another way to save tax, not to mention being a brilliant (and useful) tax free benefit to staff.
HMRC have also been generous in recently allowing staff mobile phone bills to be treated in the same way as childcare vouchers. By deducting the payments each month as a tax free deduction on the employee’s payslips the employee is saving tax.
7. A family affair
The personal allowance is currently £11,500 of tax free income. Look at your family situation to find out whether it is possible to utilise the personal allowances of family members who are able to carry out duties within your business. Your accountant will help you.
8. Pay yourself properly
It goes without saying that the amount you pay yourself will affect the tax you pay, and you also need to consider benefits in kind. Chief among those is the company car. Individual cases differ, obviously, but most business owners will save tax by having a company car. However, it is essential that you tell HMRC immediately when employees receive a company car. Failure to do so will result in a large and unwanted tax bill.
9. Get yourself organised
If you don't want to keep the books yourself (and who does?) it is essential that you keep copies of everything to help ensure that you are claiming for everything to which you are entitled. HMRC often disallow expense claims or input VAT amounts because businesses don't keep proper records. Don’t let that happen to you. There are now some pretty nifty smartphone apps you can use to scan receipts, rather than keeping them in a shoe box!
10. Build a winning team
Even a sole trader needs a good team to call on, people he or she can trust. Make sure you have an approachable accountant, as well as a good financial adviser. If either of these are people you dread approaching then you need to think very seriously about changing them. They are not the enemy - they are there to help you. And get the right advice.
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