Pay less tax this year by lowering your tax bill with our easy-to-follow “how to save tax” tips. This free tax tips ebook for small business owners guide is designed to inform you about some of the major issues you should be considering. Don’t have time to read it now? then why not download the full document? It has great tax tips for you to browse through and use to discuss with your accountant about these issues.
There are many tax incentives available for small businesses so find out how you can save a fortune and still sleep easy at night! Our ebook is fully up to date for the 2017/18 tax year. Getting bogged down with the numbers?
Get in touch and speak to us. Call us now on 07812 119562 for a free consultation.
Note : This ebook It is not a replacement for professional small business tax advice – and no action should be taken without first taking professional advice. If you do need this, we’ll be happy to help.
Our top Tax Saving Tips
1. Find out how much you can earn before tax
The standard Personal Allowance is £11,850, which is the amount of income you don’t have to pay tax on. You can earn a certain amount of income each year, called your Personal Allowance, before you need to pay any Income Tax. In general, everyone gets the same Personal Allowance of £11,850 for the year 2018-19. However, you might get less if your income is over £100,000 or if you owe tax from a previous tax year.
Source : The Money Advice service
2. Use money saving expert tax calculators
Money Saving Expert has several tax calculators to calculate your take-home pay given income tax rates, national insurance, tax-free personal allowances, pensions contributions and more. Hop on over to the site for more details…
Source : Money Saving Expert
3. Brush up on tax bands 2017/18
Income tax is paid at different rates on different types of income. The rate of tax also changes with the amount of income. There is more guidance on the HMRC web pages about Tax and tax credit rates and thresholds for 2017-18.
Source : Gov.uk
4. Look at your pay structure
As a director, you may be paying yourself a salary from your business. Have you considered if taking a salary is the most take efficient way? Having a mixture of salary and dividends can save you hundreds, if not thousands in tax and national insurance contributions.
Dividends are taxed at a much lower rate of tax, starting at just 7.5% compared to 20% for salaries, so if there are profits available in your business, make use of the allowances available for dividends. Currently, an individual can take up to £2,000 in tax-free dividends (from 6th April 2018) on top of the personal allowance given to workers.
You can take up to £8,424 per annum for the 2018/19 tax year without paying any tax or national insurance contributions but still can count the contributing years towards your state pension.
5. Contribute to your pension
It’s a very good idea to take out a pension plan, as this can be a tax-efficient way to take money out of the business while also investing in your own long-term financial security.
Making contributions from the company into your personal pension scheme helps to build a nest egg for retirement. The maximum you can personally invest into a pension and receive tax relief is 100% of your salary subject to an annual allowance limit which is currently £40,000.
Please note dividends are not classed as salary. If, as an example, you have a salary of £8,000 and dividends of £45,000 the maximum you can personally invest is £8,000. However, contributions that are made by your company into a pension for you are NOT restricted by your salary. Your company can invest the full annual allowance maximum of £40,000 and potentially more than this using carry forward rules.
Note; you will need to satisfy what is called a ‘wholly & exclusively’ requirement, but as a shareholding director this should not be a problem. Company contributions into a pension will be a tax-deductible business expense and so reduce the amount of corporation tax your company pays. Such a contribution is also NOT subject to National Insurance.
6. Marriage allowance
If you’re a new start-up business, and not taking a salary from your new venture and have little or no other income, consider transferring some of your personal allowances to your spouse or civil partner.
You can transfer £1,190 of your allowance (tax year 18/19) to your husband/wife or civil partner. This can reduce their tax bill by up to £238 every year. This can also be backdated, which could mean an immediate tax refund in your pocket. Your partner’s income must be between £11,851 and £46,350 to qualify (£43,430 in Scotland).
7. Claim research and development relief
R&D reliefs support companies that work on innovative projects in science and technology. It can be claimed by a range of companies that seek to research or develop an advance in their field. It can even be claimed on unsuccessful projects.
Small and medium-sized businesses can deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, meaning a total deduction of 230%. This could mean an immediate tax refund and a lump sum in your bank account.
HMRC has specific guidelines on this category of relief and each business must justify why its work qualifies for this relief. It’s best to consult with an expert if you intend to make use of this relief.
8. Get creative industry tax reliefs
There’s good news for companies that make their profits from specific forms of media. You can claim relief if your company is directly involved in the production of the following:
- Certain films
- High-end and children’s television programmes
- Animation programmes
- Video games
- Theatrical productions and orchestral concerts
To reduce corporation tax in these industries, your company must pass a cultural test administered by the British Film Institute. Although the process is quite complex, the relief is significant.
9. Keeping a mileage log
If you use your personal car for business trips, you can claim mileage back from the company.Keeping a log of this, either by using a spreadsheet or diary or by simply using one of the many apps available will help to reduce your business’s tax bill. Currently, you can reclaim 45p per mile up to 10,000 miles per annum. Anything above this is reclaimed at 25p per mile. It’s usually best to run your own vehicle and claim mileage using HMRC authorised mileage rates. If you have a limited company, in most cases this will also avoid higher tax on company cars.
10. Working from home allowance
If you run your business from home, either part time or full time, don’t forget to claim your working from home allowance, sometimes called ‘use of home allowance’.
The HMRC will allow you to claim a portion of your home expenses if you work from home, and has two methods of calculating the outcome. Flat rate is the most simple called ‘simplified expenses’, and a more complex route. Many small business owners operate from offices at home, but not all of them realize they can deduct expenses related to that home office. These can include insurance, mortgage interest payments, repairs and utilities like internet service.
11. Donate to charity
If you give money to a charity you are allowed to reclaim income tax on the sum, so be sure to mention any donations on your tax return.
12. Keep good records and make sure you save throughout the year
Receipts create the financial dashboard of how you spent your money throughout the year. Many of those receipts are for goods and services that can be deducted on your taxes, offsetting taxable income. Depending on your business structure, there are specific deductions you can take for certain structures, plus deductions that apply across all structures. Of course, keeping receipts for an entire year is a hassle; many pieces of paper get misplaced or tossed.
Download accountancy apps like Xero for small businesses or self-employed available on iPhone or Android. Make your smartphone smarter with the Xero app!
13. Put your mobile phone in the name of the business
Put your mobile phone in the name of the business then all phone costs are tax deductible.
14. Employ Family Members
The standard Personal Allowance is currently £11,850 of tax-free income. By looking at your family situation it may be possible to utilise the personal allowances of family members who are able to carry out duties within your business.
15. Talk to your accountant!
Business owners often complain about their accountant and how they have too much tax to pay. The truth is that the business owners who regard their accountant as trusted advisors and someone who can help them save tax are often the ones who are paying as little tax as possible. If you don’t talk to your accountant; change accountant.
And finally…There is no great secret to reducing tax bills. All you need is to be diligent with regards to accounting for all business expenses, and making sure you are aware of the options available to you for tax relief by engaging a good accountant!
For more tax saving advice please do not hesitate to get in touch with our experts.
Get in touch and speak to us. Call us now on 07812 119562 for a free consultation.
Disclaimer: This ebook is not personal advice. The information is correct as of June 2018. Tax rules do change and benefits depend on individual circumstances.