Saving money in tax is not simple and straightforward and if you are an entrepreneur of a small-size business, it becomes intrinsic as you could invest that money to keep the growth ladder up of your organisation.
The fact is no one wants to pay out taxes as you sweated blood to continue to withstand the cutthroat competition, but you cannot escape it. You can figure out some tax saving methods, but it seems boring, convoluted and stressful. Here are some tips you should follow to save money in tax.
Track small expenses
You are mistaken if you think small expenses are not worth considering. Many entrepreneurs do not add in small expenses worth under £5 and sometimes, they run out of receipts. You will be surprised in the end when you find how quickly they add up.
The awareness of how you spent money throughout the year leads to maximising your deductions. Further, this will help you get the full detail about your cash flows either from your monthly income or from external funding sources. Even if you apply for short term loans from British Lenders a loan company in the UK, its repayment will be shown in your financial record. You must have printed record of all the repayments or at least having a soft copy in your laptop.
Organise all receipts. You should scan each receipt and make a folder dedicated to them in your desktop so that you do not need to go crazy at the time of filing income tax return.
You are likely to ignore them, as tracking of them seems to be complex. You should use online accounting software to record the detail of the minutest expense. You will be trained how to use the software to upload the record of such expenses, so you should not worry even if you do not know how to use them.
Provide tax-free benefits to your employees
As an employer, you are obliged to give certain benefits to your employees. Apart from them, you can provide some tax-free benefits to your staff. They will help you reduce your tax if you add in. Tax-free benefits include food and drink, workplace parking, mobile phone, annual parties, health checkups.
Talk to your accountant
Much as you have to spend more of the time in core activities and let accountants do what they can do best, your business will continue to grow as long as you build profits. Even the smallest unproductive spending may hold you back from growing.
Accountants play a major role when it comes to filing income tax return. They always have a big picture of what is coming in and what is going out. Have a meeting with your accountant to know how you can save money.
However, many entrepreneurs do not regard their accountant as trusted advisors. If you also have trust issues, you should talk to outplacement service providers who will charge of a chunk of money as commission and detail you about what you can do to save money in tax.
Claim tax deduction if you work out of house
Self-employed workers can claim tax deduction as a certain percentage of your following home costs:
- Council tax
- Heat and light
- Building insurance
- Mortgage interest
- Water bills
- Landline and phone calls
- Internet use
- Office stationary
- General household repair and maintenance
If you use a room solely for your business purpose, the tax saving amount will be generous.
Avoid late payment
Though it seems a very simple concept, most of the entrepreneurs end up with paying penalties due to filing after the due date. You should keep all documents and records beforehand to avoid the last-minute hassle.
Pay yourself in a smarter way
The amount you pay yourself from your business has a direct impact on your tax. You should take out money in a combination of salary and dividend. Salary, dividends and benefits, everything is considered to calculate the amount of tax you will pay at the end of the financial year.
The most common benefit you should use to maximise the tax deduction is the use of company’s car. If you provide cab facility to your employees, you immediately notify it to HM Revenue and Customs (HMRC) to save money in tax. Many entrepreneurs use this system to whittle down their tax bills.
Make proper records of dividend payments you make throughout the financial year. This not helps you keep your shareholders happy and satisfied but also prevents you from being guilty.
Choose the right business structure
Starting a business as a sole proprietorship is easier but as your business grows, changing its structure becomes necessary to reduce tax bill. You should consider of partnership or a limited liability company. Both types of structure have their own pros and cons. Therefore, you should consider them before reaching the final decision.
Undoubtedly, there are a few ways more to save money. Aforementioned are the best and simplest methods to reduce tax bills. You should ask your family and friends about other ways. They can tell a more effective way. Follow whatever the method you think is suitable and convenient.
Description: Are you looking to find some tax saving ways? This blog discusses most effective tips to reduce tax bills.