Business Tax 101- How to Run Your Company Efficiently From a Tax Perspective

“How to do my business taxes?”. This is a question that most business owners in the UK ask themselves. Business tax can be one of the most stressful aspects of running a company. Moreover, there are now so many rules and regulations that knowing how to do your taxes as efficiently as possible can be extremely challenging.

At Newnham & Son, we truly believe that running a small business doesn’t have to be complicated, especially when it comes to the financial side of things. With this in mind, we’ve created this article with tips on how to run a business as efficiently as possible from a tax perspective.

Don’t Put Off Accounts and Tax Returns

The most important aspect of business tax is to stay as organised as possible. And, this includes having good time management. When it comes to business tax in the UK, you need to make sure you keep all of your affairs in order so that you don’t miss out on opportunities to reduce your tax liabilities in a legal way.

The majority of the times, HMRC refuses expense claims because they don’t receive the necessary evidence to approve them. You can avoid these types of mistakes by keeping your books up-to-date. Today, there are various applications readily available that can make small business tax a lot easier. You can also work with a local Petersfield accountant as they will already have all the necessary tools to help you get your finances in order.

Reevaluate Your Business Classification

Are you set up as a sole trader or partnership? If so, you may want to review your business classification in order to make the most of various tax benefits. As a sole trader, you have to pay a lot of Income Tax and National Insurance deductions. On the other hand, limited companies pay corporation tax. This business tax is a lot less than Income Tax and NIC.

Remember that if you set up a limited company, you will have to pay Income Tax and NIC on your salary. You can, however, manage this by taking out dividends.  

Invest Your Profits to Qualify for Tax Deductions

The best way to avoid high business tax bills is to invest your profits back into your company. Before the tax year ends, consider making investments such as buying:

  • New desks and chairs
  • Computers and phones
  • Automobiles
  • Machinery

These types of purchases automatically qualify for 100% tax deduction under your yearly investment allowance. Make sure to only invest in items that your business genuinely needs in the near future. You shouldn’t spend all of your profits just for the sake of saving tax.

If you remain a sole trader and you have the possibility to work from home, you will receive considerable tax deductions. In these circumstances, you’ll be able to deduct 20p from virtually every pound of taxable profits.  

business tax work from home

Look Into the Flat Rate VAT Scheme

You can calculate your VAT by working out the difference between the VAT you charge customers and the VAT you pay on purchases. That said, if your company makes more than £150,000 a year, you should look into the Flat Rate VAT scheme. With this scheme, the VAT you pay HMRC is a fixed percentage.

While this depends on the industry your company operates in, the scheme allows you to keep the difference between the fixed rate and the amount you charge customers. This scheme allows companies to increase their profits year upon year.  

Put Off Work Until After Year End

If you own a business that supplies goods, you could put off the completion of sales until after the tax year ends. This would mean that the profits of those sales fall into the following tax year. Unfortunately, this doesn’t work for businesses offering services. This is because the tax point reverts to the date you completed the service. Moreover, if you are a VAT-registered business, you legally have to invoice clients and customers within 30 days of completing the work.

Pay Yourself in a Tax-Efficient Way

When it comes to business tax, it’s important that you keep your salary in mind. Each year, you should pay yourself a small salary within your personal allowance. Then, you can pay yourself the rest as dividends, thus allowing you to reduce the amount of Income Tax and NIC you pay.

Additionally, make sure to keep your spouse and other family members in mind. If they undertake work for your company, you may want to pay them via your company depending on any other income they earn. You may also want to transfer part of your business to them by gifting shares of the company or creating a partnership. This will make use of the unused allowances they may have. In these cases, working with a local accountant is a must in order to avoid problems regarding capital gains or control of the business.

business tax partnership with family

Get Business Tax Advice From Your Local Petersfield Accountant

Every year, HMRC makes changes to business tax laws, making it increasingly difficult for companies to cut costs efficiently. With this in mind, the best way to keep your affairs in order is to work with a local Petersfield accountant.

At Newnham & Son, we work closely with our business clients in order to help them maximize their profits each year. We stay up-to-date with all legislation so that you don’t have to. Moreover, we can help you set up a limited company, VAT registrations, bookkeeping, and offer you personalized financial planning advice. To find out more about our services, contact us today.

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