How to save tax and keep more of what you earn!
How do you save tax each year? Staying up to date with tax knowledge is no small thing, therefore it’s unlikely that as a business owner you have the time or specialist knowledge to do your own tax planning. So how do you save tax? This is where your accountant really can provide your business with that extra boost.
Our accountants can help you make the most of each tax year and advise on the most tax efficient plan for your business.
Pre-year end tax planning service
If you only meet your accountant after your year-end then you are probably paying too much tax. By meeting before the year-end we are able to review your numbers and forecast the estimated profit and corporation tax. Then we can look at whether any simple HMRC approved planning measures will help save you tax both for the company and directors personally.
We have recently helped a client save £34,000 in tax by the directors simply making a pension contribution from the company, thereby reducing the profit and corporation tax bill that year. This also saves tax for the directors personally as the first 25% of their pension draw down is tax free.
In order to know what you’re going to pay in tax you need to know your up to date numbers. This is where the power of Cloud Accounting and Xero can really help. Having up to date information can help you forecast where you’re likely to be at the year end and estimate your tax bill. Once you’ve done this we can look for ways to save you tax.
Top tax saving tips
✓ the company could make a pension contribution into a director or employee personal pension scheme. The payment must be made before the end of the accounting period which is why it’s important to meet before the year end
✓invest in new plant and machinery and benefit from Annual Investment Allowance (“AIA”). This allows a business to claim immediate tax relief on the purchase of certain business assets
✓ look at whether your business qualifies for R&D tax relief. Tax savings may be available for research and development costs incurred on research facilities or equipment
✓claim capital allowances on property. Companies can claim a 2% straight line writing down allowance on new commercial building expenditure
✓Pay yourself in a tax efficient way by using your personal allowance as a salary and drawing the rest of your income as dividends. You pay tax at 7.5% for dividends in the basic rate band as opposed to 20% income tax
✓claiming business mileage if you use your personal car for work travel. The statutory rates are up to 10,000 miles at 45p and 10,001+ at 25P
Remember, if you save tax then our advice has paid for itself.
Cash flow and financial forecasting
Having control over your costs and a good bookkeeping function can help with cash flow in your business.
In business, “cash is king”. Cash flow is the life-blood of all businesses – particularly start-ups and small enterprises. As a result, it is essential that management forecast what is going to happen to cash flow to make sure the business has enough to survive.
In producing a financial forecast for your business, you will get a rolling forecast of your cash flow, which means you’re always going to be up to date on your cash position.
Keeping a close eye on your cash position means that you will have the opportunity to sort out any issues in good time. An unexpected crisis position with your cash flow is a sign of poor management.
Overheads should be relatively easy to predict over a three-month time frame. You will know the cost of rent, rates, insurance etc. For most businesses, staff wages are also pretty fixed over this kind of timescale too.
By getting into the discipline of updating your cash flow each week, you will have a much better grasp on how your business works and which operational areas drain cash from the business.
Targeting these areas will help liquidity and solvency of your business and allow you to sleep better at night.