As the saying goes, "taxes are a necessary evil." We all know that taxes can be a pain. But did you know that there are things you can do to help reduce your tax bill? That's right! In this blog post, we'll explore how to lower your business tax bill and save more money for yourself instead of giving it straight to HMRC. Let's get started!

Taxes – there's simply no avoiding them. However, there are ways to reduce the amount of tax you have to pay so that your business is more profitable and you and not the taxman ends up with more cash. All it takes is some preparation and planning.

One of the first things you need to do is talk to your accountant about all the legal strategies available for minimising your tax bill.

Claim everything you can as an expense

The golden rule is "wholly and exclusively for the trade" and claim all of these items as an expense. It sounds obvious, but it is the best way to reduce the amount of tax you'll have to pay. However, it means being organised and efficient with all your records. You can't claim something as an expense if you don't have the necessary documentation. So it's essential that you keep detailed records of everything.

How to do that? - Create a filing system

The first thing you'll need to do is develop and maintain a meticulous filing system. This is where your accountant comes in – it's a task you should do with them, or at least following their advice.

Some things to keep in mind are:

Keep all receipts. It's a good idea to use an application like Receipt Bank, Hub doc, Auto entry to keep track of all your receipts, meaning you'll never lose a paper receipt. Write on the back of invoices or small receipts what the receipt was for.

Create a 1-page document for your staff, outlining what they can and can't claim for.

Use accountancy software that uses a bank feed so you can be sure every bank transaction is captured.

Set up a work area at home

Even if your actual business is located somewhere else, it's a good idea to set up a room in your house as an office and use it for business purposes when you can. As a small business owner, the chances are pretty high that you will end up doing some work from home, so you may as well take advantage of being able to claim a portion of your expenses related to business within your home.

Examples of potential partial deductions include:

• Maintenance costs (like heating, electricity, home insurance and cleaning supplies).
• Mortgage interest.
• Property taxes.

Talk to your accountant about how to go about setting up a home office that meets all the conditions necessary to claim expenses.

File on time

An organised small business owner files their taxes on time. Doing so means you'll avoid paying penalties and interest and will also reduce the risk of an enquiry.

The importance of good accounting software

Keeping good records is a lot easier these days, with many accounting software solutions available. It's a good idea to talk to your accountant about which one will fit your business best and compatible with their systems.

And it's not just to help you minimise your tax bill either. If you ever have to face an enquiry, poor record-keeping will make this process more stressful than it has to be. And while keeping excellent records with a great software solution won't help you avoid an enquiry, it could help prevent raising / triggering red flags and make the enquiry itself less painful.

So if your business is new, or you haven't got around to sorting out accounting software, now's the time to make an appointment with your accountant so you can discuss your options.

End-of-year advantages

What you're looking to do here is adjust parts of your business so that you can legitimately reduce your net profit, thus paying less tax. Some of the ways you can do this are:

Review your assets

If you are looking to buy fixed assets, then just before the end of the financial year is better than just after the start, as you can claim capital allowances for part of the year just gone. Look around and see what assets can be revalued (you can write off any paper losses) and scrap any assets that may be on the books, but you never use/are obsolete.

End-of-year sale

Review your inventory and consider having a sale to clear out old stock. Getting some inventory return is better than having it padding out your closing inventory.

Review your debts

Are you owed money that you've given up chasing? If you're sure you'll never see that cash, write it off.

If you were paid for work that you don't need to do until the next financial year, inform your accountant

They will then treat this as 'income in advance' and add it to next year's sales. It will temporarily lower your sales (and therefore profit and tax) for the year.

Other items of expenditure that are often overlooked include: 
 

1) Advertising / Marketing

You can deduct the cost of advertising and marketing as long as it relates directly to your business and aims to attract new customers or raise brand awareness.

What you'll need: The names of the publications and the dates you ran the adverts. Details on your website or service being promoted and sales figures for the period can also help substantiate this deduction - as well, of course, allowing you to calculate the return on investment.

2) Capital allowances

You can deduct capital expenditure, such as purchasing new items of machinery - and the incidental costs of bringing the asset into use. In general, the asset price can be written off against your taxable profits as long as the cost is less than £1,000,000, falling to £200,000 after December 2021. The rules for accounting periods straddling December 2021 are complicated, and if you intend to invest over £200,000, please take advice first. The difference could be huge.

What you'll need: A list of all assets that were purchased new with their current market values, proof of purchase and details of where they were purchased from

3) Travel

For limited companies, it usually is beneficial to claim mileage (keep an accurate logbook) instead of having a company car. The exception to this is whether the vehicle is purely electric.

For unincorporated businesses, it is the opposite. It usually is more beneficial to claim a proportion of the running costs.

Remember that travel also includes other items, e.g. public transport, parking, or flights, for business purposes. All expenses related to work-related travel, including accommodation and food when you're away from home on a work call, as well as any tolls, parking costs, and public transport fees.

Finally - a word of warning, ordinary commuting is never allowed.

What you'll need: Besides the expenses relating to business travel, keep an accurate log of dates, times and destinations.

4) Borrowing costs

If you need to borrow money for your small business, such as when you're setting up and paying off a loan from the bank, then the incidental costs can be claimed, as well as bank/loan interest. What you can never claim for is the loan repayments themselves.

What you'll need: Copies of all statements and agreements that relate to loans

5) Software purchases

If you purchase software or other intangible assets such as property rights for your business, you can claim any costs. Remember to include all the "smaller" items as these can add up, e.g. anti-virus software, dropbox for business, email accounts etc.

Of course some of the software costs will be more essential the others! These are likely to be all the apps and programmes you use for bookkeeping and form the basis of your accounts. If you are unsure of what software you need (as opposed to what software someone wants to sell you) then do give us a call. I should mention that along with many other accreditations we are xero gold partners, quick books certified, and finally we have extensive experience with sage.

What you'll need: A list of all software purchases along with their prices and copies of receipts

6) Staff uniform

If you provide your staff with a uniform, then you can claim the expenses for that clothing. Remember, the clothing needs to be branded/embroidered. A plain shirt with a removable pin/name badge will not qualify for a tax deduction. You'll need a description and the amount paid for each item of clothing, including receipts, to verify this information.

What you'll need: A list of all clothing and uniform items with descriptions, amounts paid and copies of receipts.

Summary

Reducing the amount of tax you have to pay is down to good habits, good records and forward-thinking. It pays to be as organised as possible because it means you're better placed to take advantage of all the legitimate ways you can minimise your tax bill.

It would be best if you did all of this planning in conjunction with your accountant. They'll help you get organised and will assist in keeping your business on track so that you're paying only what you have to and are getting the maximum benefits from what tax advantages are available.

So there you have it. A few things to consider doing/claiming to keep your tax low and your business efficient.

It just so happens we're pretty good at catching all those expenses for you, so if doing your accounts gets you down, then please give us a shout. You can call us today on 07830 307066.