How do I reduce the tax bill for my business?

20 Nov 2023

Managing tax obligations is critical to running a business, and finding legitimate ways to optimise your business’s tax position can significantly impact your bottom line.

Effectively managing your business’s tax burden can ensure that more of your profits are available to reinvest into the business or to be drawn out to fund your personal goals. 

We explore several effective strategies that can help you reduce your business’s tax burden while staying firmly within the spirit and the letter of the law.

Keeping up to date

It may sound simple, but keeping accurate and up-to-date accounting records is the easiest way to save tax. If you don’t keep track of your expenditures, then the chances are you will miss out on tax deductions for legitimate business expenses. Certain types of expenses can attract additional deductions – not being on top of these may mean you miss out and pay more tax than you need to.

Tax incentives for innovation

The tax system rewards genuinely innovative companies with incentives to lower their tax bill and even get cash back from HMRC. If your company undertakes research and development, which leads to technological advances, you can obtain enhanced tax deductions for the cost of that research. Companies with registered patents can also access a lower corporation tax rate for products, including patented parts.

Maximise the benefit of capital investment.

Companies which spend money on brand-new qualifying plants and machinery can obtain a 100% tax deduction for that equipment in the year they purchase it. Unincorporated businesses or companies buying used machinery can claim up to £1 million per year of tax deductions on their investment in that kit.

Optimise Business Structure:

The legal structure you choose for your business can impact your tax obligations. Which structure is right for your business will depend on the size and profitability of your business combined with your personal requirements. Changing your business structure is not always straightforward, but having the right structure can streamline your tax obligations and save you money.

Saving for your retirement:

Saving for your retirement may not seem exciting or glamorous, but it can produce significant tax advantages now and in the future. Employer contributions for directors of companies and personal contributions for sole traders and partners can be tax deductible (but beware of contribution limits). Any growth in your pension fund can be tax-free, and when you reach pension age, you can draw down 25% of your pot without any tax at that stage as well.

Tax deferred is tax saved…

Certain expenses can only be deducted against tax when they are paid. By making sure you pay these in time for your year-end, you can bring the tax deduction forward by 12 months – while missing that deadline can mean you are paying tax earlier than you need to, proper planning in advance of your year-end makes sure you get the tax benefit as soon as possible.

Managing your business’s tax liability effectively requires careful planning, accurate record-keeping, and managing tax changes. A skilful and proactive tax adviser can ensure you are on top of your tax obligations, saving you tax and taking a problem off your desk so you can concentrate on running your business.

If you’d like support or guidance with your tax liabilities, we are here to help!

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