Anyone who has their own business has to pay tax on the profits, but effective planning in this area will help to put measures in place to make sure you only pay the tax due during the year.
Claiming business expenses
There are a number of expenses incurred during the daily management of your company that can be claimed, and these are deducted from your gross profits, reducing the amount chargeable to tax. These include business mileage, office and stationery supplies, utility bills that are solely for the company and furniture. If the expenditure has a personal element, this should be deducted and only the business use claimed for.
Working from home
If you operate from home, you can claim a weekly amount to cover the cost of incidentals, like the heating and electricity used by you while working. This can be deducted from your gross profit at the year end.
Dividends
Pay yourself a nominal salary that is equivalent to the personal allowance for the year. Take the remainder of your remuneration as dividends, which will result in paying less income tax and National Insurance.
Outsourcing services
Outsourcing some duties, like payroll and accounting and financial services, will actually reduce costs. A professional will be aware of all legitimate tax allowances, reliefs and expenses that can be claimed, therefore reducing your overall tax bill. The costs of performing other duties will become increasingly tax efficient, saving you money.
Tax codes
Check that your tax code is correct so that you pay the correct amount of income tax. Make sure that you have the right allowances and that any deductions taken are correct.
Business structure
If you are a sole trader or partnership, consider becoming a limited company. This will offer a range of benefits, including paying less tax. As a director of a limited company, you could take most of your salary as dividends. The rate of Corporation Tax for a company taxed at the ‘small profits rate’ is 20 per cent. There are many other benefits, which includes having a limited liability to protect any personal assets, and you may find it easier to secure contracts and funding for the company than a sole trader.
There are many ways to reduce your bill. For more information on how this can be achieved without falling foul of the tax man, please contact us now.