Posted: Wed 14th Sep 2011
Launched earlier this month, the Tax DonutÂ is dedicated to helping businesses get the best deal on their tax. Here, Tax Donut editor Georgina Harris explains ways to reduce your tax bill. However tricky your business strategy might seem to pin down, there's one thing you can do to make you money: pay less tax. It's easier than you might think - a day of basic tax planning can identify the best opportunities to reduce taxable income and the tax rates that apply so that you pay less tax. Plan to pay less tax Decent tax planning is the best way to reduce your annual bills - that means looking for tax reliefs and tax breaks well in advance. Consider the entire lifespan of your business, from initial start up through to your eventual exit. Then look at your business and family life, to see how you can pay less tax both within the business, on your personal income and in terms of potential inheritance tax. List your personal and business aims - what do you want from the whole picture? Don't get carried away by the thought of saving a few small amounts if changing your plans to do so risks what you hold dear. Start with your overall business and personal objectives then look for opportunities to pay less tax "" not the other way round. Save tax: the simplest way The simplest way to save tax is to ensure you claim every one of the tax allowances and reliefs you can. For instance, financing your business with debt allows you to save tax by offsetting interest payments against taxable profits. You can charge a higher interest rate for unsecured borrowing and of course there is no NI on such payments to yourself (but don't overdo the borrowing). You may be able to lower tax bills significantly by making sure you claim every trip on your business mileage, too. You can pay less tax by using the right business structure, whether you are a business start up or need to change the way your existing business has been set up. That should include finding the best way for the business to hold any assets (such as premises) in order to reduce tax bills. You'll pay less tax if you can extract cash from the business in the right way. At the moment, capital gains tax rates and Entrepreneurs' relief are both relatively low-rate taxes, so converting the money you currently take as income into capital gains payments can substantially reduce tax bills. You can probably also save money by paying yourself in dividends rather than a salary, or taking advantage of tax relief on pension contributions. No-brainer ways to pay less tax There's a whole range of simple ways you may be able to reduce tax. Look at the whole family's tax position and long-term plans to make the most of your personal tax planning.Â For instance, hiring your spouse or putting assets in his/her name usually lowers tax bills. Other ways include:
Getting a more fuel-efficient car, to both save tax and reduce your motoring costs.
Reducing tax bills on salaries by making use of tax-efficient employee benefits such as providing low-interest loans.
Timing expensive purchases of IT and equipment to bring forward tax savings.
Using the right VAT accounting scheme to both simplify VAT returns and help you pay less tax. Smaller businesses may want to voluntarily register for VAT to ensure any VAT paid can be reclaimed.
Opportunities to save tax increase the more complex your business is. The larger the amounts of money involved, the more time and effort developing strategies to reduce tax liabilities pays off.