Our “Top 10” tax saving hints for small businesses

Taxes are one of the most important issues facing small and growing businesses.

Here, Brearley & Co Tax Manager Andrew Cowe gives his Top Ten tax saving hints for small businesses.

1. If you are a sole trader, or even a small partnership, consider incorporation, especially if you don’t need to draw all the business profit for living expenses. Corporation Tax will soon reduce from 19% to 17%, compared with a top income tax plus national insurance (NIC) bill of 47%.

2. Following on from point 1, look at how you extract profits from the business. If you have incorporated then a small salary, up to either the income tax personal allowance or the NIC Primary Threshold, ‘topped up’ by dividends, will generally be the most tax efficient option.

3. Review how best to run your car, especially if there is significant business use. It is rare that company cars are more tax efficient than owning the vehicle personally and claiming up to 45p per mile mileage under HMRC’s authorised rates.

4. Take advantage of the deduction available where you work from home. You can calculate and claim a proportion of your domestic costs (utilities, council tax etc) based on the hours you work there and the size of the room(s) used for business. Alternatively, for simplicity you can use HMRC approved standard rates.

5. If you are considering buying equipment anyway, look to put the purchase(s) through before the year-end. Providing your total spend in the year is under £200,000, the expenditure can be written off against tax in full.

6. Maximise contributions into a pension scheme. First take advice on whether it is better to make personal or company contributions, but either way there will be tax relief on the amounts paid.

7. If you have employees, “salary exchange” arrangements can save significant amounts of NICs (employers’ and employees’) when used to pay for, amongst other things, childcare costs, additional holidays and auto-enrolment pensions.

8. If you need staff, employ family members to keep the money within the family unit. This is perfectly legitimate, although you do need to make sure that the work they are doing is genuine, and the wage for doing it is not falsely inflated.

9. Following on from point 8, look at the share structure to see if different classes of shares can be issued to family members, allowing dividend payments in the most tax efficient manner.

10. Put your mobile phone in the business/company name business so that the costs are tax deductible.

Contact us if you need advice.

Andrew Cowe, Tax Manager, Brearley and Co