By As a small business owner, one of your biggest challenges is probably dealing with taxes. But did you know there are legal ways to reduce your tax bill? In this article, we’ll share 6 simple yet effective strategies that can help small business owners like you save on taxes.
From claiming business expenses to using tax-efficient business structures, these tips are designed to keep more money in your business.
Claim for Business Expenses:
As a small business owner, you can reduce your taxes by claiming for business expenses. These are costs directly related to running your business. You can claim travel expenses, like fuel and train fares, and premises costs, such as heating and lighting. Staff costs like salaries and subcontractor fees are also claimable.
Other claimable expenses include office costs (stationery and phone bills), stock and raw materials, and marketing costs. By claiming these expenses, you can lower the amount of profit you’re taxed on, which means you pay less tax.
Use a Company Mobile Phone:
- Tax Deduction for Mobile Costs: If you use a mobile phone for your business, put it in your company’s name. This simple step can make all your phone-related costs tax-deductible. By doing this, you’re effectively reducing the amount of profit you’ll be taxed on, as these costs become allowable business expenses.
- Simplified Expense Management: Using a company mobile phone simplifies your expense management. All your business calls, data usage, and even the cost of the phone itself become easier to track and claim as business expenses.
- Streamline Communication: A dedicated business mobile ensures all your work communications are in one place. This makes it easier to manage business calls and messages, which can improve your efficiency and productivity.
Claim Mileage:
For business owners who use their own vehicles, claiming mileage can be a tax-efficient move. Instead of having a company car and paying higher tax rates, you can run your own vehicle and claim back mileage using HMRC’s official authorised mileage rate. This approach can reduce your taxable profit, leading to savings on your tax bill.
Provide Tax-Free Benefits:
Offering Benefits in Kind (BiKs) to your employees can be tax-efficient. These benefits, such as pensions, childcare vouchers, and cycle-to-work schemes, can come with tax advantages. By providing these benefits, you can reduce both employer and employee National Insurance contributions, leading to tax savings for your business.
Setting Up BADR ( Business Asset Disposal Relief) :
BADR’s Impact on Capital Gains Tax (CGT) is a key advantage, allowing eligible business owners to benefit from a lower CGT rate during the disposal of qualifying assets. Meeting specific eligibility criteria, such as holding assets for a minimum period and aligning with genuine retirement strategies, is crucial for unlocking BADR benefits.
Strategic implementation of BADR involves a tailored approach, considering the unique circumstances of your business. Seeking advice from tax professionals or financial advisors can provide valuable insights into optimising tax efficiency, and saving more for your business.
Make Pension Contributions:
- Tax-Free Allowance: You can contribute up to £40,000 each year to your pension without paying tax on it. This is a great way to save for the future while reducing your current tax bill. The more you put into your pension, the less profit you’ll have to pay tax on.
- Consideration for High Earners: If you earn a lot, over £200,000 a year, your pension allowance might start to go down. For every £2 you earn over this amount, your allowance goes down by £1. The lowest it can go is £4,000. It’s important to know this so you can plan your pension contributions effectively and still get the most tax savings.
- Long-term Benefits: Investing in your pension is not just good for tax savings now. It also means you’re setting yourself up for a more secure future. By saving regularly into your pension, you’re making sure you’ll have money to live on when you retire.
In Summary
By using these 6 strategies, small business owners can effectively reduce their tax liabilities. Remember, it’s about understanding what you can claim, choosing the right business structure, and keeping good records. Implementing these tips can lead to significant savings, which can be reinvested in growing your business.