Every business owner knows how important it is to save money wherever possible. That’s why finding ways to save tax can make all the difference, even if it’s just a few hundred pounds a year.

Here are 10 easy and effective tax-saving tips every small business owner should use to reduce their tax bill and boost their balance sheets.

1. Start planning early before tax deadlines to avoid incurring charges

Although your tax return deadline is the same every year, it might feel like it always creeps up on you. This usually leads to a panic as you scramble to get your tax returns in on time to avoid any charges.

That’s why it’s useful to get everything planned out and sorted early; it makes the process far easier and ensures everything is accurate and on time, saving you on any potential charges.

Penalties can stack up the longer you leave it, so being prepared can help avoid unnecessary extra payments.

2. Keep accurate records throughout the year

As well as getting your tax return in on time, try to keep the records of your business accounts up to date all year round.

Having accurate records not only helps to avoid charges but can also give you a holistic overview of where your tax liabilities lie. This may even help you identify areas where you can be more careful when it comes to saving money.

3. Check tax-deductible expenses

Always remember to claim back the tax for the costs of business expenses when you buy things you need to do your work. This may not seem like a revolutionary idea, but savings can really add up over time.

Tax-deductible expenses can include your work phone, fuel for travel, as well as the costs of working from home as opposed to in an office.

HMRC guidance makes it clear that your tax-deductible expenses must be “wholly and exclusively for business use”. Make sure to only put legitimate business expenses through, as otherwise this can land you in trouble.

4. Take your income as tax-efficiently as possible

A simple way to save tax is to pay yourself as tax-efficient a salary as possible by using key allowances, thresholds, and exemptions.

Some allowances and exemptions you could consider are:

Personal Allowance – Pay yourself a salary that doesn’t exceed the Personal Allowance, which for 2021/22 is £12,570. This saves you from paying Income Tax on your salary.

National Insurance contributions (NICs) threshold – If you pay yourself a salary of less than £184 per week (£9,568 per year) you won’t pay any Class 1 NICs on this income.

Use the £2,000 dividend allowance – You can pay yourself dividends on shares you hold in the company, with a £2,000 tax-free allowance. You may then pay 7.5%, 32.5% or 38.1% tax on dividends, depending on your earnings.

5. Pay your spouse a tax-efficient salary

As long as they’re involved in the business in some capacity, you can pay your spouse or civil partner a salary.

Your spouse or partner has the same allowances and exemptions as you, so you can pay them in the same tax-efficient way you pay yourself.

6. Make payments into your pension

Aside from a tax-efficient salary, you could also consider paying directly into your pension.

Each tax year, you have a pension Annual Allowance of £40,000, or up to 100% of your salary, whichever is lower. Pensions are considered highly tax-efficient as you receive tax relief on your contributions up to your Annual Allowance.

If you want to take more income from your business and you don’t need it to maintain your current standard of living, additional pension contributions could be a good option for you.

As pension contributions can be considered a deductible business expense, payments into pensions can also reduce the amount of Corporation Tax you owe. This can be complicated, so please speak to us if you’d like to explore these benefits.

7. Make sure your business is correctly classified for tax purposes

Different classifications of businesses may have different levels of tax to pay. For example, a self-employed sole trader usually pays a different level of tax to a limited company.

Ensure your business is classified in the right way so that you pay the right rate of tax – otherwise you may end up paying more than you really should.

8. Pay key shareholder and employee insurance through the business

Having insurance such as critical illness cover or key person insurance for important employees or shareholders can be a prudent business decision. And, by paying for it through the business, it may become a tax-deductible expense.

This enables you to benefit from the peace of mind that your business is protected while also reducing the amount of Corporation Tax you pay.

9. Plan a tax-efficient exit strategy

It may be premature to be thinking about how you’re going to exit your business, but considering a succession or business sale plan early on could save you a tax bill down the line.

Early planning gives you more time to think about how to make the most of tax efficiencies. For example, you can take time to consider Inheritance Tax liabilities that you may have. You may also be able to plan to maximise Business Asset Disposal Relief to reduce your Capital Gains Tax bill when you come to sell.

10. Speak to a planner

Working out tax can be complicated and time-consuming, especially if you’re a busy business owner with many other concerns at the front of your mind.

A financial planner can be invaluable here, finding tax-saving strategies that work for you and your business, and ultimately saving you time and money in the long run.

We’ll help you find ways to save on tax 

If you’d like to know how you can mitigate tax, please get in touch with us at Cordiner Wealth. We have years of experience in helping small business owners make the most of their hard-earned money.

Email hello@cordinerwealth.co.uk or call 0113 262 1242 for more information.

Please note:

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation which is subject to change.