Whether you’re just starting out or are well established in business it’s vitally important that you seek good tax advice – without it you could literally be giving money away. While there’s no replacement for a qualified accountant, there are some pieces of advice that apply to all small businesses.
Have a look through our 6 pieces of tax advice and see if there are any areas you could be working more tax efficiently…
- Explore flat rate VAT
VAT is VAT right? If this is your assumption – you’re wrong – and you could be missing out on a healthy size chunk of profit.
A flat rate of tax applies when you choose to pay VAT annually on your turnover – rather than individual transactions. A flat rate also means that the rate you pay is based on your industry, for example:
- Advertising – 11%
- Computer repair services – 10.5%
- Printing – 8.5%
- Labour-only building services – 14.5%
- Security – 12%
- Transport (including taxis and removals) – 10%
…and that is to name just few.
So, VAT is charged at 20% – but if you choose to pay that one-off flat rate then you’ll be paying a reduced amount to HMRC – with the remainder retained by your business. And if that isn’t good news enough, HMRC even give you an additional 1% discount for your first year of operating that way. Well worth looking into in more detail.
- Work from home?
If you’re a sole trader or small self-employed business it’s easy to settle for the most basic tax perks of working from home – HMRC offer a fairly small £2 per week allowance if your home is your business base. However, there’s much more available if you do a little homework.
As an example, let’s say you have a house with 5 rooms, if you use one of these as an office then effectively 1/5th of your household costs can be attributed to the business – so if your electricity bill £500 then there’s £100 worth of electricity that is being used to power your work if you’re there full time.
There’s a sliding scale too, so even if you just work one day from then there’s still a proportion that can be claimed. And it’s not just energy bills, you can claim against a proportion of the following:
- Council Tax
- Mortgage interest or rent
- Internet and home telephone use
It can be tempted to just keep things simple and claim the most basic amount – but remember this is likely to be far less than it actually costs to run your business from home, so calculate what you’re entitled to with a ‘Use of Home’ claim.
- Staff perks can be tax perks
Perks for staff might sound like something that’s going to impact your bottom line – but in actual fact, used smartly there are perks that can save your business money at the same time as keeping employees smiling!
- Car leasing – Have you considered offering a salary sacrifice car leasing scheme? There are lots of companies who’ll walk you through the kind of services they provide and explain the benefits in details. You’ll instantly do away with those ‘car won’t start’ excuses for days off too!
- Ride your bike to work – There are a variety of Cycle to Work style schemes – staff can save a huge amount on buying a new bike, have a small monthly sum taken from their wage for doing so and your company receives a tax incentive for promoting green travel methods.
- Child care – Providing tax free childcare vouchers can be a huge benefit to employees with families – especially considering the lofty prices of professional nurseries and child-minding providers.
And that’s not all – there are various salary sacrifice schemes available for businesses of all sizes, cutting your tax bill and giving excellent incentives that could help you recruit and retain excellent staff.
- How are you paid?
If you’re smart with how you take money from your business you can make some really big dents in your tax bill. The goalposts can move on what’s going to be best for you, so discussing options with your accountant is important – but some things to think about might be your level of salary, how much is drawn as dividends and anything that can be considered a ‘benefit in kind’.
Generally speaking the most common benefit in kind is the use of a company car – usually a positive step for someone self-employed – however, do make sure that HMRC are made aware, even delaying notifying them by a couple of months can mean a chunky tax bill.
The guidelines on how company directors are paid look set to change – so an on-going dialogue with your accountant is important. Which takes us neatly to…
- Talk to your accountant
We’re in an age that makes finding a ‘tick-box’ accountant really easy… That’s to say, every company needs an accountant – and many decision makers feel like having one onboard is just a formality – when, in reality a business-accountant relationship should be much more than that.
If you’re not talking to your accountant on a regular basis you’re missing out on what you’re paying for! An accountant isn’t just someone who’s there to keep track of the business money, in actual fact, proper financial advice is worth far more than the advanced admin skills that many are used for.
There’s no tangible amount of percentage of tax benefit that talking to your accountant will return, but if there’s one thing you can be certain of – it’s that they know more about tax than you do – so talking to them should be done as frequently as is practical!
- Keep organised!
Again, we’re finishing up with a non-specific piece of advice – but one that has the potential to save you a fortune in unnecessary tax. Keep your receipts and expenses in an organised manner! That means different things to different people – but the more detailed you are – the more efficiently you and your accountant can work together.
Can you face keeping a spreadsheet with all your business expenses? Can you just manage to keep all your receipts in one folder?
If you’re feeling really lazy, consider having a company credit card that you only use for expenses – pay it off at the end of every month and your statement suddenly becomes a very neat and organised list of your expenses – all kindly provided, printed and sent by your card company!