Tax Tips for UK Business Owners
It’s always a savvy move to find ways to reduce your tax bills and ensure that all of your tax activity is compliant with HMRC, and especially when the economy is making everyday living more expensive. To help you stay in control of your expenditure, profit margins and tax (not to mention your sanity), we’ve put together a bunch of tax tips for UK business owners.
How tax can impact a business
Tax is often seen as just one of those things that business owners hold very little sway over. A certain amount needs paying to the taxman by a certain date and that’s that. However, there are actually multiple approaches you can take to reduce your different tax liabilities, from self-assessment tax returns and corporation tax to VAT if you’re registered for it.
If you’re looking to save your business money (and let’s face it, who isn’t?), there are a few actions you can put in place that will reduce your tax bills right away. This frees up both cash flow and profit, allowing you to either invest the extra money into areas of development (recruitment, marketing, tech, training, resources and so on) or put it aside as an emergency fund.
Always pay your tax on time
One of the simplest ways to save money is to always pay your tax bills on time. This is because HMRC will charge you a £100 late filing penalty if your tax return is up to three months late. This applies even if your submission is just one day overdue, plus there will be additional fees if your tax bill is paid more than three months after the deadline. On top of this, interest will be charged on late payments, which can really add up.
Aside from costing you money, the late filing of a tax return is frowned upon by HMRC and will come with additional admin that requires time that could otherwise be spent growing your business. Don’t risk late submission – get in touch with the tax management experts at TreyBridge and we’ll remove this stressful job from your to-do list.
Know your tax terminology
The world of accounting, tax and finance comes with a lot of jargon, so it’s a good idea to polish up on your financial language. It can be tricky to know where to start, especially when a lot of online resources are written by American companies, which is why we’ve put together an A-Z of accounting terms for UK business owners. This will help you to understand what everything means when dealing with anything related to tax.
Separate your business finances and personal accounts
Now that you know your “accounts payable” from your “zero-based budgeting”, it’s time to make sure that everything bought and sold through your business is actually going through your business bank account. Many business owners (even some who have been running a company for years) still get this wrong here and there, which can have a significant impact on tax bills, especially over time.
A common example is paying for business-related subscriptions through a personal account rather than the company account, such as memberships to Dropbox, Monday.com, Hootsuite, industry magazines, networking groups, and similar monthly or annual costs that could be paid for through the business. The same goes for any office furniture and equipment, stationery, Facebook adverts, postage and even kitchen supplies like tea and coffee that are for the business rather than personal use.
On the other side of the coin, you need to ensure that all fees for products or services delivered to customers and clients are paid into your business account. This may sound obvious but some business owners have a client or two (often someone who is a close friend) who pays into their personal account either directly or through a platform such as PayPal, which can make the tax process more complex and less cost-effective.
By having all money related to your business going into and coming out of the right bank account, your tax records will remain clean, accurate and easy to submit to HMRC. What’s more, all of your personal transactions will remain private.
Keep all of your receipts
The world is becoming increasingly digital, which means that many receipts are sent from suppliers by email or through an app rather than in paper format. Sometimes this can actually cause a business owner to forget to log the expense in their accounts, as the email becomes lost in an endless sea of online correspondence. Don’t let this happen to you, as every receipt or bill should be given to your accountant or uploaded to your cloud accounting software, and the sooner the better.
Speaking of which, there’s a lot of excellent accounting software out there that allows you to submit a receipt in mere minutes (or even less than a minute), so please do ask us about Xero, Dext and other cloud accounting solutions for your business.
Use cloud accounting software
We literally just mentioned cloud accounting software but it really does need its own section, so here we go…
Some business owners still use spreadsheets for their accounts and tax, which isn’t as efficient, precise or intuitive as cloud accounting software. Though you can still use spreadsheets and lists if you really want to, we strongly recommend complementing them with software such as Sage, QuickBooks or Xero, as they’re very easy to use and designed to remove the risk of human error.
To give an example, Xero is a brilliant tool not only for accounts and tax but also for checking your cash flow, expenses, sales overview, purchase orders, balance sheet, cash summary, profit and loss, and there’s even a handy “business snapshot” feature that shares all kinds of interesting facts, figures and insight.
Claim every valid expense
If you’re not entirely sure which expenses can be claimed on the business, here’s a handy list:
Fees, interest and charges to your business bank account.
Use of a home office, including any equipment and supplies required.
Phone bills and broadband (it might be worth using a separate mobile phone for your business, as that way the full bill can be claimed for).
Childcare expenses – limited companies can receive up to £243 of childcare vouchers for employees every month.
Professional subscriptions, such as any clubs, societies, magazines, journals, websites, webinars and other communities related to your business.
Technology, hardware and software, ranging from new computers and phone systems to web hosting and Microsoft 365.
Professional development is usually a valid expense, such as any training you require in order to advance your people and business.
Equipment and furniture covers anything you need for your company to function, so make sure to keep the receipts for things like office chairs, stationery, printer toner, even paperclips.
If you pay yourself a salary as an employee of the business, this can be claimed as an expense alongside your National Insurance contributions.
You can also claim against pensions through a registered provider, allowing 100% tax relief up to the £40,000 threshold (at which point you’ll begin to pay tax on contributions).
Health checks and eye tests for you and your employees can be claimed for, as long as you can prove that they’re in the best interests of the company.
Entertainment is a tricky one. Overall, the money used to entertain clients can’t be claimed against, although it’s always worth double checking with us. Either way, paying for this activity through the company rather than your personal wallet is entirely justifiable, as long as it’s genuinely business-related (e.g. lunch with a client).
Travel costs associated with the daily commute between home and your workplace sadly can’t be claimed for. However, travelling to meetings, temporary workplaces and industry events all qualify for a claim against petrol, parking, road tolls and congestion charges, as well as any vehicle insurance and repairs associated with this activity.
Staff parties can be claimed as a business expense as long as it’s an annual event (such as a Christmas party or a summertime gala, but not a Friday night session in the pub). It also has to be open to all staff and no more than £150 can be claimed against each guest.
BONUS: A gift for a member of staff doesn’t require a tax payment if it fits the following criteria:
It’s not included in their contract
It’s not given as a reward for their performance
It isn’t cash or a gift voucher
It costs £50 or less
Keep track of your inventory
If you sell products, you’ll probably have unsold inventory taking up space throughout the year. This merchandise has an effect on your tax bills, so a reliable inventory management system is crucial in order to keep track of what’s been sold and what’s still on your shelves. Checking stock levels and their monetary values on a regular basis (at least monthly if possible) is best practice and enables you to maintain precise and trustworthy tax records.
Build up your pension
Every business owner and employee should have a private or workplace pension, as it will ensure that a healthy nest egg is put aside to complement their state pension. We highly recommend that you take out a pension plan as soon as possible and contribute a manageable amount on a regular basis.
If you’re a business owner, any money you pay into pensions through the business will qualify for tax relief. This means that you can save for retirement and reduce your current and upcoming tax bills in the process, which is a win-win situation.
Charitable donations
Donating money or resources to charity is a fantastic way to support your local community and any worthy causes that are close to your heart. In the process, giving money to charity through your business is also great for your brand image, makes employees feel even more proud to work for you, and even comes with opportunities to reduce your tax bills.
If you’re interested in giving money to charity as a sole trader, limited company or partnership, get in touch with TreyBridge Accountants for tailored advice. We’ll ensure that you donate money in the most tax-efficient way, making it easier than ever to contribute to the running of not-for-profit organisations. Find out more about tax relief on charitable donations.
R&D tax credits
Does your business carry out any kind of research and development as a means of improving existing products, services or software or developing new ones? If so, you should be eligible to apply for R&D Tax Credits. If it turns out that you’re eligible, you can claim up to 33% of your research and development expenditure, which can make a huge difference to profit margins and bottom lines.
Whether your project is relatively small or you spend huge amounts on R&D each year, claiming this tax relief is a very wise decision. The amount that HMRC decides you can claim will then be recovered by your business either as a cash payment or a reduction in Corporation Tax.
Please note that there are some changes being applied to R&D Tax Credits in 2023, which you can read more about here.
Additional tips for saving tax
Here are a few quick guides to reducing both your personal and business tax bills in other ways:
Book a tax consultancy session
We’re not just skilled accountants, as we also provide in-depth and fully personalised tax consultancy and tax management services. Over the years we’ve saved individuals, families, trusts and businesses a lot of money through dedicated tax planning, such as:
One business owner saves £20,000 every year.
We’ve helped clients to receive thousands of pounds in CIS claims.
Our team provides tax-efficient ways of accounting for school fees.
We reduced a family’s inheritance tax bill by a staggering £2million!
To find out more about how we can help you to reduce your tax bills and save money on an ongoing basis, call our Northern office on 01482 235575, our London office on 0207 885 0605 or fill in the contact form below.
Tagged as: Tax & Expenses
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