10 Smart Tax Tips for Businesses

No entity, person or business should pay any tax unnecessarily.  There are laws and rules that absolutely need to be followed, and when those laws and rules are followed only the tax that has to be paid, is paid.

So, with this in mind, here are 10 smart tax tips for businesses.

Know Your Industry

There are different tax efficiencies and reliefs available for different industries – so know yours so you can fully optimise those efficiencies and relief. 

For example, there are specific reliefs available for farmers, that aren’t available for other industries.  In the same vein, there is a relief available specifically for video game developer businesses.

Pensions

Pensions can be hugely tax beneficial for both individuals and businesses.  Pension costs are tax deductible for businesses, just as other expenses from the profit and loss account are.

There’s also tax relief on pensions for individuals.  So, as well as helping to set up your future in retirement, pensions are tax effective for both individuals and businesses.

Accuracy and Maximising Claims

One of the biggest reason’s businesses overpay tax is because they’re not properly recording their accounting information, meaning they’re not taking full advantage of all the available tax relief.  There are many examples of this, from incorrectly classifying VAT, to inaccurately recording purchases information, to errors in classifying sales and purchases from a timing and category point of view. 

This is a very simple and easy problem that’s solve with proper bookkeeping and the accurate recording of accounting information.  So, if this isn’t something you can do yourself then find someone that can.

Get the best from VAT

VAT is a whole area of tax efficiencies in itself, and it’s not just the correct recording of VAT, as mentioned above.  There are many VAT schemes available to businesses of different sizes that can help utilise tax efficiencies; from the VAT Cash Accounting Scheme, to the Flat Rate Scheme, VAT Retail Scheme and more.

So, know what VAT schemes are available to your business, and capitalise on them.

Capital Allowances

Capital allowances are available to businesses when they buy capital equipment, such as plant and machinery, computer equipment, land, buildings and motor vehicles.  There are many rules involved in capital allowances, which dictate how much can be claimed and when. 

When investing in any capital items for your business you should know which rules and allowances apply; sometimes these rules can mean the difference between paying a tax bill and not, depending on the capital item purchased and other taxable profits.  So, when you’re investing in capital items be aware of this.

Timing & Payments on Account

If you pay payments on account, or instalments of tax of any kind, timing can be key in not paying out money unnecessarily.  Preparing and filing your tax returns as soon as possible means that your payment instalments can be amended to accurately reflect the correct amount of tax due. 

This is of particular importance when you have fluctuating profits from year to year, which could result in your overpaying tax in a year where you will ultimately be taxed less.  That cash is better in your pocket than HMRC’s and, although you will receive a refund for any tax overpaid, if you don’t have to pay it over in the first place you’re best not to so you can properly utilise it.

Deadlines

HMRC make literally millions every year for people and businesses missing tax deadlines.  If 100,000 people miss their self assessment filing deadline, HMRC make £10m in that one penalty alone.  That’s why knowing what your deadlines with HMRC are, whether that’s filing deadlines or payment deadlines, is so important.

Know when these deadlines are – and stick to them.  Missing payment deadlines can result in paying out penalties and interest.  Again, this is money that could be in yours, or your business’s pocket – which is where it’s better utilised! 

Losses

If you have any kind of tax losses, utilising them in the most tax efficient way is very important.  Make sure you’re claiming all the available loss reliefs, in the most tax efficient way – which could be carrying losses forwards, or backwards or offsetting them against other profits.

A Holistic Tax View

If you run a business, there’s a chance that some tax efficiencies can be found between you and your business.  By looking at both you and the business as a whole – a holistic view – the most tax efficiencies can be found.

These efficiencies could be claiming allowable expenses that are split between you and the business, if you’re a sole trader or partnership, or splitting salary and dividends if you’re a limited company.  Be sure to look at everything as a whole, as well as you and the business individually.

Use a Professional

We’ve barely scratched the surface by touching on the other 9 tips included here, which is why you should utilise a professional whose job it is to know all of the tax rules and regulations, and keep up with the changes in them.

This is one of the most important reasons to engage an accountant.  A good accountant will pretty much pay for themselves in the tax savings they can utilise for you and your business.  It’s important to have a good, open working relationship with your accountant, so they know what’s going on in your business and can best apply the tax rules for efficiencies.