January 10, 2017 Last updated January 11th, 2022 1,917 Reads share

5 Ways Small Businesses Can Save on Taxes

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With the economy being as competitive as it is today and the market growing at a slow-but-steady rate, being able to gain any competitive advantage may be the key to business success. There are a lot of money-saving ideas that small business can use to stay competitive. Saving on your taxes is also a great way to lower your business’s overheads further. These five tax-saving ideas are great ways to start saving on your small business taxes.

#1. Report and Pay Your Taxes On-Time

Managing a healthy cash flow can be difficult, but the one thing you should never postpone even when cash flow is a bit tight is filing a tax return and paying your taxes. The fines and other fees associated with late payments can quickly accumulate; avoiding them can help you save more than £100 on these charges alone.

Most business softwares now have automated tax calculations built into them, which means you can generate a report and file your Company Tax Return rather easily. The same system can be used to manage your business when you’re a sole trader, which means you can also submit your Self Assessment return on time.

#2. Check Your VAT

As a small business, it is critically important to understand how to calculate your VAT properly. Are you paying the right amount? It is not uncommon for business owners to lose money by overpaying their VAT. This can be avoided by understanding the different schemes available to businesses.

You should also take a closer look at the Flat Rate VAT scheme. This scheme, introduced by HMRC to help small businesses and sole traders stay competitive, allows you to pay a flat rate VAT according to the industry you are in. Real estate traders, for instance, can simply pay 12% VAT on all of their turnovers.

The flat rat scheme can help you save a lot on VAT. It is possible to save more than £5,000 a year just by switching to the Flat Rate VAT scheme alone.

#3. Provide Tax-Deductible Benefits

As a small business, your biggest assets are your employees. They can help your business grow to a whole new level. It is only reasonable to provide them with benefits and rewards to keep them happy. After all, happy employees are far more productive and will contribute so much more to the company.

There is no shortage of options when it comes to tax-free or tax-deductible benefits. You can provide employees with tax-free childcare vouchers. These vouchers will help you save on tax and keep employees happy at the same time.

HMRC also has a lot of tax-free and tax-deductible schemes under the new tax law. Mobile phone bills of employees can be added to the employees’ payslips as a tax-free deduction. A relevant life policy can also enable you to save up to 49% on premiums while enjoying the maximum tax benefits.

These schemes are certainly worth using. They may not always mean a huge amount of tax savings directly, but they still allow you to offer more benefits to employees without spending a lot of money in the process.

#4. Work with a Financial Advisor and Accountant

For most small businesses, especially home businesses run by a family or a couple, understanding the different schemes and tax rules can be difficult. Working with a financial advisor in finding (legal) ways to save on taxes is always the way to go.

Financial advisory and professional accounting services are not as expensive as you think. In fact, most of these services will pay for themselves when you consider the amount of money you can save on your taxes. You can even find ways to save on other cost elements of your business after a careful review by an experienced accountant.

Those working as a sole trader or in a partnership can benefit even more from having a financial advisor. Instead of spending time getting your accounting and books in order, you can focus your time and energy on more important matters, such as closing that sale and finding new potential clients to approach.

#5. Grow Your Family Business

Another great way to save on small business taxes is to keep it in the family. HMRC actually allows a personal allowance of £11,000 in tax-free income. If you have family members performing important roles in the business, you are actually allowed to utilize the personal allowance scheme on each family member.

This is a particularly handy way to save on taxes, especially since the maximum amount you can save is relatively large. Having four family members working for the business translates to a maximum of £44,000 of tax-free allowance just waiting to be claimed. Of course, the family members you add to the company must actually do important work for the allowance to be valid.

More Tips and Tricks!

The previous five ways to save on small business taxes are great ways to get started. Get your finances in order and start using the tips we discussed above to lower your annual tax amount and increase your business’s competitiveness.

There is still so much more you can do to save on taxes too. For instance, you can choose to work from home and claim a portion of your home-related costs against your business’s taxes. Mortgage interest, insurance, energy bills and general maintenance costs are among the things you can claim if you choose to work from home.

You should also take your time to know more about your industry. There are industry-specific tax breaks and regulations that will help you save more on your taxes. Get in touch with industry-related organizations and find out more information about these schemes.

Don’t forget to get started too. All of these savings are just waiting to be claimed. Find a good financial advisor, work with a reputable accountant and start implementing the best tax-saving ideas to further lower your small business taxes. You’ll be surprised by how much you can actually save at the end of the day.

Image: Calculating numbers for income tax return with pen, glasses and calculator

Boris Dzhingarov

Boris Dzhingarov

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