Paying tax is an inevitable part of making a living. Whether you work for a company or are the business owners, we all need to be paying tax to the HMRC so as to avoid fines and penalties. But where this is something we cannot escape from, there are some ways to reduce the amount of tax that you’re liable for. In this article we’ll be giving you some tips for reducing the amount of tax you owe the government, whilst still ensuring you’re paying the right amount to avoid being penalised.
1. Take advantage of your tax allowances & reliefs
Depending on the size and structure of your business, you will be able to take advantage of a number of tax allowances and reliefs. However, everyone gets a basic allowance, such as an annual investment allowance that stands at £200,000 for a 12-month period. The expenditure on plants and machinery that qualify under this annual allowance can cost up to £200,000, whilst being deducted from any profits before tax is calculated.
There are also individual tax allowances that everyone will be able to take advantage of, standing at £12,750 a year. This means that individuals can earn up to that amount in one year, tax-free. However, anything earned above that amount will be taxed based on your tax band. For example, if you earn £22,750, you’ll be taxed on £10,000 at 20%. There is also an opportunity for basic rate tax payers to earn up to £1,000 in interest without paying any tax on it. Other allowances and reliefs you’ll be able to take advantage of includes, but is not limited to, the following:
- Dividend allowances
- Capital gains tax exemptions and allowances
- Marriage allowances
- The Work from home allowance
- Creative industries relief
- Any available loss reliefs
2. Reacquaint yourself with your remuneration policy
A remuneration policy isn’t the same for every single business. For example, if you’re operating as a partnership, the allocation of taxable profits between each partner will need to be taken into account. Whereas those operating under a limited company will need to be careful when it comes to the mix and timing of salary and dividends. The circumstances of each taxpayer needs to be taken into account, so make sure you know what your individual policy states.
3. Paying for staff parties can reduce how much tax you pay
Although this might seem like a strange way of reducing the amount of tax you owe, any party or event costing up to £150 per head will be tax-free for employees and tax deductible for the company. This means that, not only can you reward your employees in a tax-efficient way, but you’ll also save money in tax payments whilst spreading goodwill across the workforce.
4. Consider share schemes
Companies can offer share schemes to their employees as a way of getting a Corporation Tax deduction. Not only is it a good incentive for you as the business owner, but it’s also a benefit for your employees, allowing you to reward them in some way for their hard work. Essentially, it’s a win-win. There are so many schemes available, so make sure you seek professional advice before committing to anything.
5. Make sure you claim your business expenses
Despite this being one of the most obvious things you can do to reduce the amount of tax you pay, it’s important that you don’t forget about the expenses that are derived from your accounting records. Some directors will incur expenses on behalf of the business, but they might then either forget to claim them through their accounts, or they aren’t aware that they’re able to do so in the first place.
Make sure you’re claiming back your business expenses so that you’re benefiting from the allowances and reliefs that are rightly available to you. Any deductible expenses should be included in your accounting records. If you’re unsure about how to go about claiming back expenses, especially if you’ve never done it before, then look to a professional accountant for help and guidance. In many cases, they’ll be able to do it all for you.
6. Pay more into your pension pot
A popular way of reducing the amount of income tax you owe, paying more towards your pension pot can help to limit the tax paid on your monthly salary. It’s also worth noting that those payments need to be made before the end of the accounting period, especially when it comes to pension contributions paid on behalf of employees or directors. This is a quick and simple way of reducing the amount of corporation tax you owe.
7. Always meet your deadlines
As a business, there will be some deadlines you need to meet with regards to tax that will be set by the HMRC. You need to make sure that all of that documentation is in order and that all payments and declarations are made on time. This will help to avoid being landed with considerable fines and penalties. If you end up owing tax to the HMRC, it could also incur interest as a penalty for missing tax payments. If you only want to pay the minimum required, then make sure you’re meeting all of your deadlines, in good time. An accountant will be able to help you do this. Not only will they be able to keep track of your deadlines, but they will also give you the peace of mind needed for you to focus your attention on other aspects of your business.
8. Hire an accountant to do the leg work
One of the best and easiest ways to make sure that you’re paying just the right amount of tax is to hire the help of an accountant. They will know exactly what is taxable and what isn’t, whilst also making sure that you’re meeting all of your deadlines so as to avoid fines and penalties. In addition, they’ll also be on hand should you have any questions or need any advice about anything with regards to the tax you owe. RLTP Accountants have a team of highly-qualified professionals at the helm of operations, ensuring that you’re always provided with the best possible service no matter your requirements. From bookkeeping and VAT services right through to self assessments and company formation services, you can rest assured that we’ll be able to help you.
RLTP Accountants are highly-experienced accounting specialists who are dedicated to providing both domestic and commercial customers, particularly those who own small, start up or SME businesses, with unrivalled accountancy services that will transform your financial operations. For further information about how we can expertly manage your accounts, in absolute confidence and to a meticulous standard, get in touch with a member of our knowledgeable, friendly team today – we’re always pleased to hear from you.