Top tax saving tips for your small business

Kirsty Young Advice and Tips, Limited Company, Tax

The rapid approach of the end of tax year always focusses our minds on how we might save tax in our small business. Yet what really makes the difference is the spade work you do all year round, in preparation for those business tax returns.

That’s what these tips are all about!

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 ApplePay
  • 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. So, before you snaffle that brownie, snap the till receipt!

2 – Educate yourself

The tax law is the UK runs to well over 22,000 pages! It’s therefore no surprise that business owners aren’t educated in every possible tax deduction.

Whilst it’s unlikely you will become an expert (we’d be out of a job…), some basic knowledge of what you are allowed to deduct can really help you spot opportunities.

It’s important that the information you educate yourself with is accurate and reliable. That’s why we’d suggest starting by reading more of our blogs, listening to our podcasts and watching our YouTube Videos. You can then “graduate” to the .Gov website, which provides further information on the topics.

It’s also good to understand what ‘tax deductible’ really means. You can start by reading our blog on tax deductions and how they work.

If only they taught you this in school, but that’s another campaign!

3 – Investigate if a limited company is 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 £40,000+ of PROFIT a year (at time of writing).

That said, we have many businesses on our books that went down the limited companies route who were well below this amount. It’s best to talk to your accountant or business advisor about this, as the “right time” to change is very dependent on your personal circumstances. You’ll find more detail on this at our limited company pros and cons blog.

In short, in the right circumstances, limited companies can save a lot of money.

4 – If you are a company, 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:

… to name a few.

5 – Look at the little things

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

You can read more about some of the potential in our other blog on tax savings.

Can an accountant really help me save tax?

Absolutely! If you don’t have an accountant, or feel you aren’t making the most of tax saving opportunities with your current accountant, we’d love a chat about how we can help. We can also help you set up a limited company, deal with payroll, and a shedload of other accounting services you might need too!