Year end tax planning doesn’t have to be aggressive or involve dangerous tax avoidance schemes. There are sensible ways to plan and save tax as part of your year end.
Here are our top 10 simple strategies to tax plan as your small business approaches its year end:
1. Considering a major purchase? You may be thinking about buying a new computer or investing in an all singing & dancing new e commerce website. If you have the cash available, you could think about doing this before the year end so you get tax relief on these purchases sooner rather than later. Under the capital allowance rules, business are entitled to claim annual investment relief ‘AIA’ on tools and equipment (currently up to £200,000). So by purchasing an item that meets the criteria for AIA, your business will be able to deduct the full amount of this purchase from its taxable profit.
2. Have you claimed all your cash expenses? It’s very common for business owners to have bought items for their business in cash throughout the year as they were out and about. If you have your receipts, our freelancers definitely advise you to make a list of these purchases because they could be included as business expenses and reduce your taxable profits. Even if your Company is not in a position to repay you for these expenses, they can still be logged in your Directors loan account and repaid at a later date.
3. Have you used your car for work purposes? If you driven to see your clients, the simplest way to claim for the travel is by making a mileage claim. You could take a look back through your diary and see which clients you went to see and where they were. You are entitled to claim up to 45p per mile for the first 10,000 miles (25p thereafter) if you used your car.
4. First year? If you are approaching the end of your very first year of trading you can claim for items you bought before you formed your Limited Company or begun formally trading. Perhaps you bought yourself a computer or bought your website name to hold it in preparation for your new business. You may even be able to claim back the VAT! So dig out those receipts.
5. Work at Home? If you work at home as well as your office you can make a flat rate claim, without receipts, for using your home. This is currently £4 per week and it’s a simple way of saving a little tax and a benefit of all those late nights!
6. Consider how you pay yourself. If you have a Limited Company it may be worthwhile paying yourself a salary up to the personal allowance through payroll and extracting the rest as dividend, but this will depend on your particular situation. The amount you draw through the payroll system will be fully deductible when working out your taxable profits.
7. Pension schemes. You could consider setting up a pension scheme since contributions made by your company can be tax deductible. Also the individuals who are part of the scheme may not have to pay personal tax on the contributions made.
8. Got a loved one who supported you in your new venture? We have all had a little help and could be worthwhile remunerating them as your new Company begins to flourish. Depending on their personal circumstances it could be beneficial to add them to the Company payroll and paying them some money to take advantage of their personal tax allowance.
9. Defer income. You may have been in the lucky position of invoicing early for a job that you don’t plan to deliver for a month or so. While that’s great for your cash flow, it will mean that if that invoice is part of your year end you will have to pay tax on it. It’s entirely possible to defer this income until the point that you actual being work, which may mean that you don’t need to declare this income until the following financial year. So make a note to discuss this with your accountant.
10. Charitable Donations. If you have a Limited Company, the good news is these are tax deductible. So why not pay it forward if you have had a good year and give to your favourite charity.
These are some very simple tax planning tips for you to consider when you plan for your small business year end. However we do recommend not only discussing these with your accountant, but also consider where your business is going in the future. You may be considering investment and would like to show a healthy profit or you may be cash strapped, so spending cash on new equipment right now may not be right for your business. The best start to tax planning is keeping your books in order and consult with an accountant who can make sure you take the approach that is right for you and your business.