Sorting out your taxes can seem like a daunting task. However, getting to grips with the basics can save your small business significant sums. Of course, a lower tax liability means more funds for you and your business to grow with. These are our top tax tips to keep you on track with your finances:
Do Your Research
Tax deductions are a significant way for small businesses to save money so it’s worth knowing exactly what you can claim for. There are many business expenses that are tax deductible. Allowable expenses include (but aren’t limited to):
- A proportion of household bills if you work from home
- Telephone expenses in the company’s name (mobile and landline)
- Business travel (excluding commuting)
- Some uniforms (where the employee is required by his or her duties to wear it)
- Decorating office areas which will be seen by customers/the public
The current capital allowance scheme also allows you to claim on assets that you use for your business, such as equipment, machinery and vehicles. In most cases you can deduct the full costs of these items from your profits before tax, but it’s worth checking with your accountant for exact details.
Retain Copies Of Everything
One of the easiest ways to help deal with tax is by keeping a record of what you’ve spent and received. HMRC are entitled to ask for evidence of any claims you submit, so make sure you have a robust filing system and know where to look if asked. Retaining records also helps with keeping track of smaller expenses that you might otherwise have forgotten about, especially anything that was paid for in cash.
Keeping on top of things regularly, rather than just at the end of the financial year, can save hours of time in the long run – and your accountant will thank you for it as well.
Not meeting HMRC’s deadlines is an easy way to lose money so make sure you submit any forms and payments on time. Similar to the PPI deadline, remembering a tax return is due back a few days before the deadline isn’t going to be enough time to complete it accurately – meaning you could miss out on what you are owed or end up with a tough penalty later in the year. If you’re having any trouble with particular submissions, contact HMRC as soon as you can to discuss your potential options, rather than putting it off until it’s too late.
Check The VAT Flat Rate Scheme
It’s worth remembering that the nature of your business could affect how much VAT you pay and there’s a chance you’re currently paying the wrong amount. The VAT Flat Rate scheme allows you to pay a fixed rate of VAT to HMRC – the rate depends on the nature of your business – and you then keep the difference between that and the amount of VAT you charge your customers. This will be of benefit to some businesses but not others, especially following recent law changes, and is only eligible if you VAT turnover is £150,000 or less.
Pay Yourself Properly
If you’re the business owner, paying yourself a small amount up to the personal allowance and then the rest in dividends should be considered. According to Howlader & Co, a chartered accountant firm, the first £2,000 of dividends are always tax-free, with the rest dependent on the tax band you fall into for your other income. Check with your accountant about the most efficient method of paying yourself and other employees as the sums can get fairly complicated.
Understanding taxes and how to keep on the right side of HMRC is crucial for any small business – but don’t feel like you have to go it alone. Our tips should help you save money but don’t be afraid to contact professionals for expert advice if you feel you need it.