As a business owner, you’ll be aware of the different forms of tax you must pay. Or perhaps you’re a startup and aren’t quite sure of what tax you need to pay.
Business tax and VAT encompass corporation tax, capital gains tax (CGT), and construction industry scheme (CIS), as well as others, such as income tax and national insurance contributions.
And this isn’t even an exhaustive list. So, it’s fair to say that tax can make a sizeable difference to your earnings. But what can you do about this?
In this article, our experts will explain how to save on tax through our business tax planning service, which isn’t only clear and simple, saving you time, but it will also help save you money on your tax.
Our experts explain how to save on tax through our business tax planning service.
What is Business Tax Planning?
You might be wondering: ‘What is business tax planning?’
Well, business tax planning is a practice which allows you to manage your taxes by organising all your finances, in turn, minimising the risk of tax liabilities and ensuring you remain fully compliant with the law.
As part of tax planning, you need to look at the bigger picture. This will help with making strategic decisions to ensure you get the most from your tax-free money.
This might seem like cheating, but business tax planning is completely legal as it works within the boundaries of the law. On the other hand, tax avoidance is legal but looks for loopholes, which HMRC can deem unethical – more on that later.
To summarise, business tax planning is a legitimate process which helps businesses make smart financial decisions.
What is the Difference Between Tax Planning and Tax Avoidance?
As previously mentioned, although these approaches sound similar, they are very different in intent, legality, and ethics.
While tax planning is the legal arrangement of finances, tax avoidance utilises loopholes or aggressive strategies to reduce tax.
Tax avoidance aims to exploit gaps, which is often done through using offshore accounts, artificial company structures, and shifting profits across borders.
Therefore, it’s often scrutinised by HMRC, so those who use this practice may be challenged, shut down, or penalised, which can potentially lead to back taxes, penalties, and reputation damage.
How Tax Planning Saves On Tax
But how does tax planning save money?
When you utilise a tax planning service, you’ll be saving your business’s time, and as a result, you’ll save money, as you’re trusting a tax advisory expert with your finances – time is money, after all.
But tax planning itself can also save you money on your taxes. This is achieved through strategic decisions throughout the year, taking advantage of available tax reliefs, allowances, and exemptions.
This is all completed on a case-by-case basis, but here are some areas which we would investigate to help save tax for your business.
1. Allowances
To save on your taxes, you need to take advantage of tax-free allowances. As the name suggests, tax-free allowances are types of income which you don’t need to pay tax on.
There are different types of allowances which can be utilised depending on how you run your business, such as personal allowance, annual investment allowance, and tax-free dividends.
There are many other tax-free allowances available to help you save on your taxes. When you partner with Lumin Accountancy, we can investigate all the avenues to help you save.
Tax can make a sizeable difference to your earnings.
2. Investments
Investments really do go a long way; tax-advantaged accounts such as ISAs and pensions can help with growing your tax-free income with little effort, making them extremely cost and time-effective.
Investing can seem a bit daunting, as there’s so much to consider and pressure to get it right for the best outcome. But once you invest, you’ll keep reaping the benefits.
While investments are a form of tax planning, they also make tax planning easier as returns on investments are predictable, meaning growth stays in your pocket and compounds over time, which can boost long-term tax-free income.
3. Income & Expenditure
Tax is calculated during the financial year; therefore, by shifting income and expenses into a different year, you’ll be reducing your tax liability.
For a business, this could involve deferring the issue of invoices until after year-end (if using cash accounting) and delaying rental or other non-essential income. You can even buy machinery, office supplies, or services before year-end, and prepay some bills, if allowable.
By adjusting when you receive income or make purchases, you can take full advantage of tax allowances, stay within lower tax brackets, and maximise deductible expenses. This proactive tax planning approach helps you keep more of your earnings and strengthen your overall financial position.
4. Business Structure
Choosing the right business structure, such as operating as a sole trader, partnership, or limited company, can have a big impact on how much tax you pay, how profits are distributed, and what reliefs and allowances you’re eligible for.
This decision is a fundamental part of tax planning and can directly affect your take-home income, liability, and growth potential.
Depending on what you’re looking for from a business structure, they all have their pros and cons; key factors to consider include setup, tax efficiency, liability protection, profit retention, and external investment.
5. Capital Gains
When you sell an asset, such as property, shares, or a business, you may be liable to pay CGT on the profit you make. However, by carefully planning when you sell, you can reduce or eliminate your CGT liability by using available reliefs and exemptions.
This can be achieved through annual exempt amount (AEA), using losses to offset gains, and combining reliefs with timing. In turn, you’ll pay less tax and prevent being pushed into a higher tax bracket, which would result in higher taxes.
6. Eligible Deductions
This is another powerful business tax planning tool which we recommend you use.
To minimise your tax bill, it’s essential to claim every business expense and deduction you’re entitled to, as this will maximise your taxable profit.
This could include claiming for research and development (R&D) tax credits, capital allowances, and even business mileage. These reduce your total income subject to tax, meaning you keep more of what you earn.
If you need help with improving your tax-free money, we can help.
How We Can Help Save Tax for Your Business
As we can see, it really pays to invest in business tax planning.
We hope this guide has helped you to understand how to save on tax. If you want to find out more about how accounting can help your business grow further, you can read our business guide.
If you need help with improving your tax-free money, we can help. We understand that you need a service that is tailored to you. That’s why we offer a range of service packages to suit your business needs. From core services to holistic financial management, we can support your business.
To find out more, get in touch with our Swansea office or our Ystradgynlais office.
