Top tax saving tips for small
businesses
When setting up as a sole trader, you can claim against your profits for items used in your business even if they were purchased prior to commencement of trade.
The current capital allowance regime allows you an immediate 100% writing down allowance on the first £100,000 expenditure on eligible capital items. If your year end is approaching and you are considering buying plant and machinery items, committing to purchase prior to your year end can accelerate the entire cost against your profit of that year. Beware the allowance is to reduce to £25,000 for 2012/2013 so it may be worth ensuring capital investment is undertaken prior to 31 March 2012.
Incorporate your business – The reduction in corporation tax rates from 1 April 2011 may make it worthwhile incorporating your business. Please contact to assess whether this would be beneficial for you.
Married couples/civil partners should ensure that their finances are arranged to utilise each personal allowance (£7,475 for 2011/12) and lower rate tax bands (£35,000 for 2011/2012). It might be sensible to transfer income producing assets to a spouse to take advantage of their lower taxable income.
Capital Gains Tax - you each have an exemption for Capital Gains (£10,600 for 2011/12). It makes sense to use this if you can. If you intend selling assets, it may be worth transferring them into joint names or spreading the disposal over 2 years. The rate at which Capital Gains Tax is payable will depend on a number of factors but broadly basic rate tax payers will pay 18% and higher rate taxpayers will pay 28%. In some circumstances the capital gains tax rate can be reduced to as little as 10%. With the capital gains tax rates significantly lower than the 50% top band of income tax there are a number of planning opportunities.
Consider your method of drawings from the business. If a limited company, paying a small salary up to the personal allowance and the balance as dividends is normally the most efficient method, however this is not always the case.
Put any mobile phone you have in the business name and all costs of the phone are deductible (you do not have to split business vs non-business calls).
Use a salary sacrifice scheme to pay for employees childcare costs of up to £243 per month tax free. Childcare voucher schemes are tax free for the employee and the business operating the schemes incur no Employer’s National Insurance. For higher rate taxpayers joining schemes after 6 April 2011 the level of the tax exemptions may be limited but this will be determined by a “basic earnings assessment” carried out by the employer.
Make contributions into a pension scheme. Pension contributions tend to be deductible expenses for the company, and suffer no immediate tax charge on the individual. Where an individual’s adjusted net income for 2011/2012 is more than £100,000, their personal allowance will be reduced by £1 for each £2 of excess. Consider making individual pension contributions to preserve personal allowances. Individuals could save £2,990 in 2011/2012 at 40 per cent, or more if relief is available at 50 per cent. This is because adjusted net income is reduced by individual pension contributions. However, the impact of pension anti-forestalling rules and the reduced annual allowance needs to be borne in mind. It may therefore be advantageous to transfer income-producing investments to a spouse.
If you make a loss, there are various options available to you. Have a chat with your accountant to find out how to maximise tax relief. Sole traders can do a whole host of things with losses to obtain relief. Companies have less flexibility with losses.
If you work from home you will be able to claim a deduction to cover part of your home running costs. HMRC allow (a modest) £3/week without requiring any evidence. If you believe the actual cost is higher (based on household expenses compared to proportion of home used for work purposes) then a bigger claim may be made, however this may require justification.