Business accounting tips: How can I save money on business taxes?
Although managing a profitable business has its own set of difficulties, being aware of the intricacies of tax legislation can significantly impact your bottom line. With the ever-changing tax landscape and economic uncertainty, small businesses are hustling to save money on taxes for survival. But determining what resources are accessible and to which you could be entitled can be challenging for many small business owners.
A Federation of Small Businesses report states that almost 48% of small businesses claim that taxes are their biggest financial burden. In addition to causing stress for business owners, filing late tax returns incurs fines from HMRC, which can worsen the situation.
Tips to save money on taxes for your business
While a lot of tax payments are unavoidable, and you might be wondering how you can save money on taxes, following tax-saving tips can help you maximise the opportunities for legitimate tax savings. It is never too late to learn how to save money on taxes.
1. Keep accurate records
One of the most essential tips to save money on taxes is keeping meticulous bookkeeping records. It is always better to separate your personal and business expenses to avoid confusion during tax filing. As per HMRC, keep invoices and receipts of all your expenses for at least six years.
The key aspects you need to keep track of are bank statements, sale invoices, purchase receipts and invoices, payroll records, business travel expenses, etc. These records must accurately document your income and expense records to file your taxes without errors.
Any missing receipts or failure to provide supporting records will lead to HMRC disallowing your expense claims.
2. Use accounting software
Traditional accounting methods, such as manual bookkeeping, are prone to errors and are time-consuming. For instance, if you want to check transaction records for a specific day, you must manually find your bookkeeping records, such as invoices, receipts, or bank statements. Have you considered how much time will be wasted on this activity? Accounting software has proven to be a game changer in these scenarios.
Staying on top of your accounting game requires automating repetitive tasks, which eventually helps you save money on taxes. It will help you stay organised by improving the accuracy of your bookkeeping, generating financial reports, recording transactions, and tracking tax liabilities.
Accounting software like FreeAgent, Xero, SageOne, and Quickbooks helps you automate repetitive accounting tasks, enabling you to calculate tax calculations accurately. It saves your time so that you can focus on core business activities. Thus, it eliminates the chance of manual errors so that you can focus on how to save tax.
3. Explore VAT schemes
Value Added Tax (VAT) is levied on goods and services. Many companies charge VAT on their sales and claim VAT on the company purchases once they register for VAT. But did you know that HMRC offers flat-rate VAT schemes for qualifying businesses with a taxable turnover of less than £150,000 annually? This flat-rate scheme might enable you to save a little from your VAT burden if it is appropriate for your business.
As a business owner, you can pay a flat rate percentage of your business turnover to HMRC instead of calculating VAT on your purchases and sales. Hence, checking the standard VAT and flat rate schemes is essential to determine which options will offer you tax efficiency. Exploring VAT schemes can be a minefield and it is recommended to seek expert advice before embarking on this.
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4. Consider research and development tax credits
Do you believe in innovation as an aspiring entrepreneur? In this competitive market, innovation will keep you moving forward and fulfil customer expectations. There is good news for UK business owners: the UK government is offering Research and Development tax credits to businesses focusing on innovative activities.
This initiative encourages UK business owners to invest in research and development projects. You will get tax credits from this scheme, which will eventually help you reduce your tax liability.
However, businesses must fulfil criteria such as keeping accurate records of research and development projects and expenses such as infrastructure and staff costs. Only businesses with sound knowledge of technical capabilities essential for research and development projects are eligible for this tax credit. It is advisable to talk to a financial adviser who specialises in this tax credit and who will ensure your business is ready to claim all required expenses.
5. Know your allowable expenses
Understanding the expenses that can be deducted from a business’s taxable income is essential for effective tax planning. HMRC allows businesses to deduct a wide array of expenditures that help to minimise your tax liability.
The list of business expenses includes:
- Office supplies
- Rent and utilities
- Marketing expenses
- Travel expenses
- Machinery and equipment costs
- Employee salaries and benefits
- Training and development costs
Keep invoices and receipts for your business expenses to claim them when filing taxes.
6. Plan your taxes
Tax planning is one of the most vital cornerstones of any business. It involves taking proactive steps to minimise your tax burden by anticipating the tax liabilities. You must plan strategically by managing your cash flow while keeping sufficient funds aside for tax payments.
Whether a limited company owner or a sole trader, you must know where and how to invest to save tax, which are allowable expenses, and be aware of tax deadlines. Hence, planning your taxes properly will help you pay them on time, thus avoiding penalties and late payment charges from HMRC. It all becomes a lot easier if you can find a certified financial planner for tax planning.
Over to you
Managing a business is undoubtedly hectic, but managing taxes and accounting will leave you little time to focus on your business expansion. Staying ahead of tax law changes is insufficient; talk to a financial advisor and you may find you can reduce your tax liability in many ways.
Our certified financial advisors at Affinity Associates will develop tailored tax planning solutions per your business needs. Working with our tax advisors will help you navigate the complexities of accounting and tax legislation while making sound financial planning.
Book a consultation with us to learn how we develop tax-saving strategies for your business to reduce tax liabilities.
