Top Tax Tips for Small Businesses

Many business owners will be facing a substantial tax liability in the New Year.  Here are our top tips to help make your next tax bill slightly less painful…

  1. Give regular consideration as to whether your business is better off trading as a sole trader, partnership or limited company. The corporation tax rate, currently 19%, is significantly lower than income tax rates, which are currently up to 45%.  Whilst it is of course necessary to pay income tax when you take money out of a company, to the extent that you do not require the income, you may be better off accumulating profits within the lower corporate tax environment.   
  • If your business is a limited company it often makes sense to take your money out using a combination of salary and dividends, as well as other tax efficient strategies.  It is worthwhile regularly considering the most tax efficient options to maximise tax savings. 
  • Make sure you correctly record dividend payments made by your company on board minutes and dividend vouchers.  HMRC may seek to tax payments as salary, including charging NICs, if the proper paperwork is not in place.
  • If you are planning to invest in new business equipment, make the most of the increase in the Annual Investment Allowance. The Annual Investment Allowance provides a 100% tax deduction on, from 1 January 2019, the first £1,000,000 spent on eligible plant and machinery.  
  • If you have a company that invests in research and development (“R&D”), consider making a claim for R&D tax relief. R&D relief is one of the most generous reliefs in the UK tax system, offering a tax deduction of up to 230% of qualifying costs.
  • Plan for the long term.  If you are working towards a future sale of your business, start thinking now about the impact of capital gains tax and, in particular, the availability of entrepreneurs’relief.  Entrepreneurs’ relief reduces the rate of capital gains tax payable on qualifying gains to only 10% but requires careful planning.

Please get in touch with your usual Ryecroft Glenton contact on 0191 281 1292 if you would like to discuss any of the above in further detail.