Discovering that you are being investigated by HMRC can be very stressful, even if you are...
A lot of tax advice is aimed at large companies and multinational corporations. In today's article, we'll give our top tips for small businesses.
If you want expert tax advice personalised for your business, please get in touch. One of our experts will be happy to have a free, no obligation chat about what you're looking for.
Otherwise, here are our top tips on how to arrange your affairs in the most tax efficient way. For more details, check out the HMRC page on business tax.
Tax Free Benefits
Current tax law allows for a number of tax free benefits for your staff. Check with your accountant first, but you should consider:
- One mobile phone per employee
- Subsidised travel (including incentives to use bikes or share cars)
- Staff parties and team-building (subject to a limit per person)
- Health checks and sport/fitness subscriptions
- Parking and/or use of car pools
Employ Your Family
As long as they are legitimately working for you (again, check with your accountant to make sure you are compliant) you can employ family members and take advantage of tax free bands.
If you pay them the same amount as the tax free band, they won't have to pay any income tax at all. You can also make use of their capital gains tax allowance.
We do stress, the salary must be sensible and must reflect the work carried out. You must pay the salary too! You can't just do it "on paper" so as to get a tax advantage. HMRC knows all the tricks so keep it above board.
Take Your Profits
There are a number of ways of taking money out of the business:
- Director's Loan
1. If you choose to pay yourself a salary, make sure you are correctly registered with HMRC. You'll have to deduct the necessary tax and NI. But you will take advantage of the "personal allowance". This means you can draw a salary of this amount without having to pay any income tax.
2. If you run an incorporated company, some of the profits will go towards corporation tax. Anything left over can either stay in the company ("retained earnings") or come to you as dividends. It's usually more efficient to pay yourself dividends as the tax rate is lower than on salary.
3. Loans to and from the business are a little more complicated in terms of the accounting. They can be a useful way to solve liquidity issues (in either direction). But we would only recommend doing so with the advice of a professional accountant.
4. If you incur expenses "wholly and exclusively" for the purpose of doing business, you can claim them as a business cost. This has two advantages. You get the money back tax free. And you can set the cost against the business profits (for corporation tax purposes).
If you'd like to discuss any of the tax advice in this article, please get in touch. We would be happy to discuss your needs and make suggestions. And be sure to check our our case studies to learn how we work with businesses just like yours.