Considerations on how to save tax should be an exercise in the mind of a business owner all year round. It does not suffice to wait until the end of the tax year as this may often be too late in some circumstances.
The following tips can be applied to your business at any point in time;
1 – Keep Good Records
This tip may sound simple, but honestly, it’s the #1 way to save tax.
In order to get a tax deduction on something, the first step is having a record of what you spent where (and when).
It’s so easy to miss out on a possible tax deduction through losing receipts, especially those you do not pay from your bank account. These might include:
- The fuel you paid for in cash
- That Costa you had while working away that you paid using cash or Apple Pay
- The eBay purchase you made using your personal PayPal account
Receipt capture apps can help with keeping tabs on receipts. They enable you to snap/scan a receipt using your smart phone, which the app then “reads” using tech wizardry and automatically uploads to your account in the cloud. Popular apps include Dext, Auto Entry, QuickBooks, Hubdoc, etc.
When these apps are paired with a cloud accounting app such as Xero or QuickBooks, you can quickly record and reconcile every transaction, to make sure you haven’t missed any tax deductions.
The trick of course, is to train yourself to not walk away from the counter without using the app.
2 – Educate yourself
Given the complexity of tax laws in the UK, it’s understandable that many business owners aren’t aware of all the tax deductions available to them.
While becoming a tax expert may not be necessary (that’s where we come in), having a basic understanding of permissible deductions can help you recognize valuable tax-saving opportunities
It’s also good to understand what ‘tax deductible’ really means. You can start by reading about it.
3 – Is a Limited company for you ?
As your business grows, you’ll start earning a reasonable amount of money. At this point, a limited company structure could help your business save a decent chunk of tax.
In order to benefit from this, you need to figure out (usually with professional help)
- how best to pay yourself,
- how to structure the business
- how to tweak your business expenses for the most ‘tax efficient’ option
The big question of exactly when depends on your circumstances. We suggest that you start thinking about it when your business is making around £50,000+ of profit a year.
That said, we have many businesses on our books that went down the limited company’s route who were well below this amount. It’s best to talk to your accountant as the “right time” to change is very dependent on your personal circumstances.
This is very important because under the right circumstances, limited companies can save you a lot of money.
4 – Review your pay structure and expenses
As a limited company owner/director, there are various ways you can pay yourself. This subject is way more than a single blog in itself, but you should definitely look at items such as:
- the salary you take
- the dividend you take
- If you and a ‘significant other’ are in the business together, how the combination of pay works
- Expenses you can pay
- Trivial Benefits
- Company cars
… to name a few.
5 – Every little helps
As with all things tax, the devil is in the detail. There are various small things you could do to add to your tax savings, including:
- Investing the maximum in ISAs
- Claiming Marriage Allowance
- Maximising Pensions and ‘lost years’ NI contributions.
Can an accountant really help me save tax?
Yes, in fact, a good accountant will benefit you more than any costs you may need to pay for their service.
If you don’t already have an accountant or feel you’re not taking full advantage of tax-saving opportunities with your current one, we’d love to chat about how we can assist.
From setting up a limited company to handling payroll and offering a wide range of other accounting services, we’re here to help with all your financial needs
FAQs
· why is keeping good records essential for saving tax?
- A: Keeping good records is crucial for saving tax because it allows you to track and document your expenses, making it easier to identify potential tax deductions and ensure accurate financial reporting.
· How can receipt capture apps help with tax savings?
- A: Receipt capture apps enable you to easily store and manage receipts digitally, helping you track expenses and ensure you don’t miss out on any potential tax deductions. These apps streamline the process of recording and reconciling transactions.
· How can educating myself about tax laws benefit my business?
- A: Educating yourself about tax laws helps you understand the available tax deductions and opportunities for tax savings. This knowledge empowers you to make informed decisions and maximize your tax benefits.
- When should I consider transitioning to a limited company structure?
A: Transitioning to a limited company structure can be beneficial when your business is generating a significant profit, typically around £50,000 or more per year. However, the timing of this transition should be based on your specific circumstances and financial goals.
- 6. What are some small actions I can take to maximize tax savings? A: Small actions like investing in ISAs, claiming Marriage Allowance, and maximizing contributions to pensions and National Insurance can contribute to your overall tax savings. Paying attention to these details can help you optimize your tax situation.
- 7 How can an accountant help me save on taxes?
A: A knowledgeable accountant can provide valuable insights and advice on tax-saving strategies tailored to your business. They can help you navigate complex tax laws, identify opportunities for savings, and ensure compliance, ultimately maximizing your tax benefits.