Most businesses want to pay as little tax on their profits as possible, providing it is done in a legitimate manner.
Effective tax planning is the best way to ensure that you pay minimal tax on your income. Therefore, you should be investigating ways to reduce tax from the day you launch your company through to the moment you retire.
Relief and tax allowances
The simplest way to minimise your tax bill is to make sure that you are claiming all of the relief and tax allowances that you are entitled to. Claim for all expenditure, including business mileage. You may also be eligible to claim research and development credits, or set off interest payments on debt finance against profits.
There are so many types of allowance and relief that you may require professional advice to make sure that you are eligible. Employing an accountancy outsourcing service will keep you best advised of the criteria.
Business entity
Make sure that you are trading with the most suitable business entity. It doesn’t matter whether you have an existing organisation or you are just starting out, you can become a limited company at any time. The business type often depends on the level of income, among other considerations. However, there are pros and cons to be considered before making a decision.
Your income
It is possible to reduce the amount of tax you pay as a director of a company, if you take a minimal salary and accept the remainder as dividends. This is especially tax efficient if you are a higher rate earner, as you won’t pay national insurance on the dividend income. By taking a smaller salary, you could also avoid the higher 40% rate of tax.
Many people take a salary that is covered by their personal allowances. It is also possible to claim tax relief on pension contributions, so it may be advantageous to increase pension payments if possible.
Other ways to reduce tax
You may want to consider whether you are operating the most suitable VAT accounting scheme for your company. In addition to paying less tax, you could also simplify returns. You may even consider voluntary VAT registration, so that you are able to claim back on any duties paid. Many companies register for VAT on a voluntary basis to be able to reclaim some taxes, even if they are below the VAT threshold.
There are many more ways to reduce your tax bill legitimately, so give us a call if you would like to discuss it some more.