Want to retain more of your profits? In the UK, taxes take a big bite of your profits, but you can reduce the impact with the right strategies. Let's explore some of the top tax saving tips to save on business taxes in the UK without crossing any legal boundaries.
Understanding Business Tax in the UK
To begin saving, you first need to know what you are up against. All businesses should understand the UK business tax rate for 2024. Large businesses pay at the current rate of 25%, though smaller ones may fall into a reduced rate on their profits. We wrote an article on, ‘The Impact of Associated Company Rules and Corporation Tax Rate Changes on UK Businesses’. If you want more details on the new business tax changes. We’d suggest giving it a read.
Note that even slight changes in laws on taxation can make all the difference; this is majorly due to its impact on your bottom line.
Why Businesses Care about Tax Savings
Ever heard the expression, "It's not about how much you make but how much you keep"? Well, that couldn't ring truer when it comes to taxes. Efficient tax planning allows businesses to save on corporate taxes, Improve their profitability, Invest more in the areas of growth and Improve cash flow.
Forgetting tax-saving opportunities is like leaving money on the table, and no savvy business owner wants that!
Tax Planning vs. Tax Evasion
Now, let me remind you very quickly: Tax evasion and tax planning are two different things. Tax planning, of course, is perfectly legal-correct use of deductions, credits, and other incentives available. Tax evasion, to put it quite simply, is illegal and might attract severe penalties. Always stay on the right side of the law, using legitimate tax-saving tips to Save on Your Business Taxes.
Tax Reliefs and Allowances Utilization
The good news is that the UK government offers some tax reliefs that will help you cut down a substantial amount of your tax.
Capital Allowances
In case your business purchases equipment, machinery, or vehicles, you may claim capital allowances against your taxable profits. You may deduct a part of the cost from your profits prior to its computation.
R&D Tax Credits-Innovation pays!
If your business is involved in the development of new products, services, or processes, then you could qualify for R&D tax credits. This can cut your corporation tax or, if your company is loss-making, provide a payable tax credit from HMRC.
AIA
AIA enables companies to get a deduction of the whole value of the qualifying plant and machinery, up to £1 m in any given year. This is a great method of receiving immediate relief for capital investments.
Making the Most of Tax-Free Thresholds
For smaller businesses, a possible way of reducing tax burden is to remain within thresholds that make the business non liable for tax payment. For instance, if your business's annual profits are below £50,000, you will pay lower corporation rates than larger companies. Managing your income and expenses properly is one of the simplest tax-saving tips for small businesses.
The Go-To Tax Saving Tips
There are a few “Go-to” tax saving tips which almost every business owner can take advantage of and incorporate into their trading.
Salary vs Dividends
Every business owner knows that identifying how to pay yourself is one of the most important decisions you will likely face. It will have the biggest impact on your company and personal tax bill.
You are able to combine a Salary and Dividend for better benefits. While one is on salary, they enable you to make use of personal tax allowances. Dividends, on the other hand, are at a lower rate of tax that may provide substantial savings.
Structuring Your Business for Tax Efficiency
Being a sole trader, partnership, or limited company have varying effects regarding tax. Often, the best way to limit tax liability is to set up a limited company, and it also opens up more options when it comes to tax planning. However, the misconception is that a limited company is always more tax advantageous and this just isn’t the case.
Preparing Your Pension Contribution as a Tax Strategy
Paying into a pension can reduce your business tax. This is because pension contributions are taxable expenditure for you and your business. So, paying into a pension is an excellent way to save on taxes while planning for your future.
Claiming Business Expenses Effectively
The claiming of legitimate business expenses can greatly help to Save on Your business Taxes cut down your taxable income. Travel and accommodation, Office supplies, Marketing expenses etc.. However, make sure you have all the records in a proper way for the purpose of avoiding any HMRC problem.
Loss Relief: How to Make the Most of It
If, in previous years, your company has made a loss, then you can use that to your advantage. This is known as 'loss relief'; you can offset those losses against the future profits to come to decrease the tax liability or carry them backwards to reclaim against tax previously paid.
Timing of Income and Expenses
You can avoid a bigger tax bill by the simple use of delaying income to the next tax year or racing expenses into this year. It's a good strategy, especially if the business profits vary from year to year.
Tax Planning with Employee Benefits
Fortunately, the provision of tax-efficient employee benefits will keep your employees happy and motivated at work with health insurance, company cars, or even cycle-to-work schemes.
Preparing Your Taxes with an Accountant
Finally, the best ways to save on business taxes is engaging an accountant. Our knowledge ensures you don’t have to memorise this article. Leaving the tax planning to us, ensures you don’t have to worry about missing out on any savings.
What's next?
Our team at MJ Kane, aims to help keep you right. Schedule a free consultation call today to discuss your circumstances and understand what you need to do. If you already have a grasp, you may benefit more from one of our tax advice/planning meetings.
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