How to Make Tax Planning Stress-Free for Your Company This Year
As a business owner, one of your many goals is to minimise costs wherever possible. This is why tax planning for your business is so vital. Tax planning refers to the implementation of solutions that can help your business lower its taxes. Tax planning for the upcoming tax year will let your business make the most of its profits and help them avoid unnecessary expenses.
There are many reasons why tax planning is essential for your business, but it’s also a necessity in order to keep away from problems with the HMRC. Here is our guide for businesses in the UK who are looking to save on tax expenses this year.
Business structure and tax liabilities
What taxes you pay are dependent on the structure of your company. There are different types of business structures and each caters to different circumstances. Ensure that you have chosen one that is best suited to your needs.
Additionally, different business structures offer different tax planning solutions. It is essential to take this into consideration when strategising ahead for business tax planning.
A sole trader is an individual who is the sole owner of a business. They are legally considered self-employed and do not have an identity that is exclusive to their business. This means that, as the business owner, you are the business.
Being registered as a sole trader means that you are legally self-employed. As a result, you are liable for income tax. Income tax is based on taxable income via your business profits. As it is the responsibility of the individual, it is considered a direct tax.
A limited company is where the business is registered as its own entity and its ownership is based on equity.
As a limited company, paying tax is slightly more complicated than it would be as a sole trader. Instead of income tax, your company (as it is now legally a separate entity) is now responsible for paying corporation tax. This is based on the business’s profits, both from regular operation and from the sale of investments/ assets. Please note that corporation tax planning still goes hand-in-hand with your own personal tax planning especially if you are looking to purchase an acquisition
There are certain taxes that you are required to pay regardless if you’re a sole trader or a limited company.
If you have employees, then you will need to pay the employer’s national insurance contributions.
If you offer goods or services that are VATable, then you will also need to register for VAT. However, this is not necessary if your taxable turnover is under a certain limit — please refer to the official government website for the current cap.
Capital allowance is a type of tax relief for businesses. It is an umbrella term for many categories of items that are tax-deductible. This generally includes equipment, machinery and business vehicles. How much you’re able to claim depends on which capital allowance you use.
Annual investment allowance (AIA)
If you have an item that qualifies for AIA, then you may be able to able to deduct its full value from your profits before tax. Qualified items include most plant equipment and machinery. Business cars and other items given to your business cannot be claimed for AIA — however, they may qualify for writing down allowances instead. Please be aware that if you claim AIA on an item but then sell it, you may still need to pay tax.
This is when your assets — including vehicles, machinery and equipment — wear away over time through regular usage. This then decreases their value. It is written off against the profits of several years and not just the year of purchase. Please note depreciation is now allowable for tax but instead can be claimed through capital allowance.
As a business, your aim is to cut expenses wherever possible. Fortunately, there are ways this can be done with business tax. There are many tax reliefs provided by the government that encourages business growth and keep the market competitive. Below are some to consider, but ensure you do further research to know which ones are best for your business and if you meet their criteria.
If your business has made losses this year — whether through trading, assets or property — you can offset this through corporation tax relief. Through your tax return, you can offset losses against profits.
You can plan tactically when offsetting losses. For example, you can carry losses back to previous years’ profits or push them forward against future years’ profits if you’d like to reduce the tax you pay next year.
Business asset disposal relief
Previously known as Entrepreneur’s Relief, this is a type of tax relief that allows you to pay tax at 10% on all gains on qualifying assets. This is primarily for when you’re selling shares or your business through business acquisition. You may be able to pay less Capital Gains Tax when you sell all or part of your business.
Upgrade your business tax planning
Good business tax planning, one that is well thought out and comprehensive, is imperative for your business. It can be a challenge as a business owner but, fortunately, you can source reliable tax planning advice from a business accounting firm.
Wilkinson Accounting Solutions is a business accounting and consultancy firm that specialises in account management and bookkeeping services for businesses. With our team of highly-trained accountants and an arsenal of industry experience, we will use our expertise to help you save on business expenses and elevate your company’s accounts for success. Get in touch with us today to learn more.