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Establishing what's available and you're entitled to can be tricky for small business owners. We've summarised some top tax tips below, to help you save tax. 

Tax planning for new businesses

Starting your own business is an exciting and challenging experience. During the start-up period  you will have to make many decisions that are important to the success of your business. You will need to consider the business structure, profit potential, how you will pay yourself, and business growth.

At TaxAssist Accountants we provide expert tax advice helping you to make your start-up business as tax efficient as possible.

Register for self-assessment

When starting a business you will need to register for self-assessment with HM Revenue & Customs (HMRC). It’s important to register ahead of the deadline so you don’t fall foul of HMRC’s rules.

Keep accurate records

It’s important to keep accurate business records of income and expenses. This is a requirement of HMRC, and also a responsibility of directors. Directors must meet their obligations. Otherwise, HMRC may be penalise them and ban them from being a director in the future.

If you’re a sole trader it may be easier to keep personal and business finances separate. This helps to ensure you’re including all relevant income and expenses in the right place. This will also avoid confusion when preparing your accounts and tax return.

It’s important to keep accounting and tax records for at least six years.

Know your allowable expenses

You should make sure you’re aware of what you can deduct from your taxable income. Your TaxAssist accountant can help to ensure that you benefit from all the allowances and reliefs available to you. You will pay tax on your taxable profits, so a crucial element of tax planning is to claim all deductible expenses.

If you work from home, you can claim tax relief on part of your household expenses. HMRC also have a simplified method of claiming use of home based on the number of hours you work from home.

When working away from your main place of business, you may be able to claim costs of travel and accommodation. It's important to keep adequate business records, such as a mileage log of business journeys. This will enable you to claim for accurate travel costs, and satisfy HMRC’s need for suitable evidence.

Claim your personal allowance

Most individuals in the UK have a personal allowance. This is the amount you can earn before you start paying income tax. You may have a smaller personal allowance if you’re a high earner, or have lost this altogether.

You may want to consider if you can claim Marriage Allowance or Blind Person’s allowance to enhance your personal allowance.

Individuals also have use of:

  • Personal savings allowance £1,000 per annum (£500 for high earners, £0 for additional rate tax payers)
  • Trading allowance £1,000 per annum
  • Property allowance £1,000 per annum

Make use of tax reliefs

There are various tax reliefs available to sole traders and business owners. This includes capital allowances, which allow you to claim tax relief on the cost of certain capital expenditure. There are difference types of capital allowances which include:

Annual Investment Allowance (AIA)

Most businesses can claim AIA against the purchase of eligible plant and machinery. The AIA applies to businesses of any size and most business structures, but there are provisions to prevent multiple claims.

The AIA amount is £1 million and businesses can allocate their AIA in any way they wish. For example, using the allowance against expenditure qualifying for a lower rate of capital allowances may maximise tax savings.

First Year Allowance (FYA)

In addition to the AIA, a 100% FYA is also available to businesses. You can allocate this to the purchase of qualifying assets. This includes electric cars and zero-emission goods vehicles and some environmentally friendly equipment.

Writing Down Allowance (WDA)

Any expenditure not covered by the AIA or FYA enters either the main rate pool or the special rate pool. This will attract writing down allowance (WDA) at the appropriate rate. The rates for WDA are 18% and 6% respectively.

The special rate pool applies to:

  • higher emission cars
  • long-life assets
  • solar panels
  • thermal insulation
  • integral features of buildings, specifically:
    o    electrical systems (including lighting systems)
    ​o   hot and cold-water systems
    ​o   air conditioning and air cooling systems
    ​o   space and water heating systems
    ​o   lifts, escalators and moving walkways
    ​o   external solar shading

For most other plant and equipment, including some cars, the main rate applies.

Businesses can claim a small pool allowance of up to £1,000. This is applicable if the value of their main or special rate pool is £1,000 or less.

Pay your tax on time

HMRC imposes penalties and interest charges for late filing and late payment. It’s important to be aware of deadlines to ensure you meet your business’ requirements.

Late filing of a tax return could result in penalties ranging from £100 to £200 plus 20% of the unpaid tax. The amount depends on how late you file the information with HMRC.

If you fail to make a timely payment, your account will incur late payment interest. This interest rate is 2.5% above the Bank of England's base rate.

Budget for your tax bill

It’s important to budget for tax that is payable. Preparing a cashflow forecast will ensure you have enough cash to meet any arising tax liabilities. If you are unable to pay your taxes on time, talk to HMRC to arrange a payment plan.

You must pay income tax by 31st January, and by 31st July if you have to make payments on account.

Corporation tax is payable nine months and one day after the accounting period ends. Larger companies pay corporation tax in instalments.

Consider using accounting software

An appropriate software package is essential for concise and effective record-keeping. This will also enable you to meet your Making Tax Digital and VAT obligations. We can advise you on suitable software to meet your business needs.

Seek professional advice

A professional accountant must keep up to date with technical knowledge. They can advise you on how changing legislation may affect you and your business. It’s important to have an adviser that you trust.

Keep up-to-date with changes

Your accountant stays updated, but it's important for you to also stay informed about changes. TaxAssist publishes news and articles which may help you to be aware of these changes. They can give you an insight which you can then discuss with your accountant.

Voluntary Cash Basis

You may wish to consider the voluntary cash basis for calculating taxable income for small businesses. This allows eligible self-employed individuals and partnerships to calculate their profits based on the cash that passes through their business. Businesses earning up to £150,000 per year can use the cash basis. They can continue using it until they earn £300,000.

VAT registration

You may wish to consider registering for VAT, even if your turnover has not exceeded the VAT threshold. Being VAT registered means you can reclaim VAT on purchases, as well as paying VAT on sales. Depending on what you are buying and selling, you may be due a VAT repayment.

Planning for the year ahead

You should undertake tax and financial planning before the end of your business year. It's better to be proactive than leave it until the end of the tax or financial year. For example, accelerating capital expenditure into the current financial year may allow you to make use of your Annual Investment Allowance.

How we can help

We are tax experts and can provide you with advice based on your individual circumstances. Give our team at TaxAssist Accountants call today on 0800 0523 555 or contact us using our online contact form.

Date published 28 Sep 2019 | Last updated 10 Oct 2023

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

Catherine Heinen, FCCA

Catherine is a Technical Content Writer at TaxAssist Accountants, and a qualified accountant. With experience working at two accountancy practices in the UK top 50 accountancy firms according to Accountancy Age, Catherine has significant experience in accounts, tax returns and advising clients. Catherine ensures businesses, business owners and individuals are kept up to date and informed by providing concise and informative technical material.

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