As a small business owner, you always look for ways to save money and reduce expenses. One way for you to do this is to make your small business tax-efficient. Taking advantage of certain tax breaks and deductions can lower your tax bills and help you keep more of your hard-earned money.
There are several ways to make your small business tax-efficient. Here, our accountants will share some of them:
What Taxes Does My Business Have to Pay in the UK?
As a business owner in the United Kingdom, you must pay several different taxes. The main taxes your business will be liable for are corporation tax, income tax, and value-added tax (VAT).
A corporation tax is a tax on the profits of your business. The corporation tax rate is 19% for the 2019/20 tax year. Income tax, on the other hand, is a tax on the money that your business earns. The income tax rate depends on how much your business earns, with the highest rate being 45%. VAT refers to the tax on the sale of goods and services. The standard rate of VAT is 20%, but many items are subject to a reduced rate of 5% or 0%.
In addition to the main taxes, your business may also be liable for other taxes, such as stamp duty, national insurance contributions, and business rates.
Claim for Legitimate Deductible Business Expenses
There are a lot of different business expenses that can be deducted from the taxes, but not all of them are legitimate. Here are some legitimate deductible business expenses:
- Start-up costs
- Business travel
- Business meals
- Business equipment
- Business Insurance
- Business rent
- Business utilities
- Business taxes
- Business interest
- Business losses
Boost Your Cash Flow with VAT Accounting
The value-added tax (VAT) is a consumption tax levied on goods and services sold in the European Union (EU). VAT is levied on the value that is added to goods and services, which is the difference between the price of the goods or services and the cost of the inputs used to produce them. The VAT rate also varies from one country to another but is typically around 20%.
VAT accounting can be a great way to boost your cash flow. By accounting for VAT on your purchases, you can reclaim the VAT paid on those purchases from the government. This can be a significant amount of money, especially for businesses with large purchases.
VAT accounting can be complicated, but many resources are available to help you understand it. The best way to understand more is to talk to your accountant or a VAT specialist.
Offset Your Business Losses Against Profits
When it comes to taxes, offsetting business losses against profits can greatly reduce your overall tax liability. Essentially, if your business has a net operating loss (NOL), you can use that loss to offset any taxable income you have in the same year. This can be a massive help in reducing your tax liability, and it’s something that every business owner should be aware of.
See Which Tax Reliefs You Are Eligible For
Are you aware of the various tax reliefs you may be eligible for? Tax reliefs can help to reduce your tax bill, so it’s important to be mindful of what’s available. Here, we’ll take a close look at some of the most common tax reliefs and how you can claim them.
One of the most common tax reliefs is the Personal Tax Allowance. This is the amount you can earn each year before you start paying income tax. For the 2020/21 tax year, the Personal Tax Allowance is £12,500. This means that you won’t have to pay income tax if you earn less than this amount.
You may be eligible for the Higher Rate Tax Relief if you’re a higher-rate taxpayer. This relief is available on incomes between £50,000 and £150,000. The amount of relief you can claim depends on your income, but it can be worth up to £1,250.
Conclusion
There are many ways for businesses to be more tax-efficient. Some of the most common methods include claiming for deductible expenses, boosting cash flow with VAT accounting, offsetting business losses against profits, and determining which tax reliefs you could be eligible for. A reliable accountant can help make your small business more tax-efficient, so make sure you have one on your side.
Accountants247 offers dependable accounting services in Warrington. Let our accountants take care of your taxes, payrolls, and more. Get in touch with us to know more!
