The deadline to make your business taxes is approaching, but you still have time to take some measures to ensure a correct presentation. Here are 10 tips that will save you time and headaches when you decide it is time to pay your taxes this year. In addition, these simple actions can save you money and ensure you greater profitability. But the most important thing is that they will guarantee you that you comply with the regulations on the tax return in order to avoid any future complications or even an IRS audit. It is never too late to learn how to save time, money and problems when preparing your company’s taxes!
10 Tips to Prepare Your Company’s Taxes
Tip 1. Save Your Receipts and Track Your Expenses or Use An Automated Bookkeeping Software.
One of the biggest mistakes that small business owners make is not keeping up-to-date financial records, which also includes keeping all receipts related to your business expenses. Maintaining proper records and keeping track of your expenses are the first steps towards accurate tax filing.Does saving and filing your receipts seem like torture? Good news is that, you do not need to keep all the receipt physically. You can use an OCR software to snap or scan all of your receipt and keep them digitally. Tax Care offers a free OCR software to all the clients to keep track of your business expenses digitally.
As a business owner, you must be very diligent throughout the year when ordering, saving and classifying receipts for all types of transactions related to your company. Buying lunch for your employees, taxi rides, fuel for your commercial vehicles and even the purchase of printer ink cartridges are all expenses that must be accounted for correctly. These small expenses don’t seem like much, but they accumulate quickly: the average owner of a small business generates hundreds, if not thousands of pounds, in small expenses over the course of the year.
Having your receipts in order when the time comes to do the taxes will save you time and maybe a lot of money. Don’t worry: Remember that the proper monitoring of your expenses also has other benefits: it will help you get to know your business better and can even help you decide if it is time to apply for a commercial loan.
Tip 2. Form a Limited Company or Trade as Sole Trader
If you have not yet established the structure of your business or the legal entity under which you operate, do so as soon as possible. Maybe you are paying too much in taxes if you are considered a sole trader. The best solution is to establish your business entity. Doing so when the year begins is a sensible and economical strategy to save on taxes. You don’t know what is the best option for your business? Trade as sole trader or forming a limited company are the most common business structure in UK. Each of the business structure has their own tax benefits. However, you will pay lower tax by forming a limited company as currently the corporation tax is 19% and income tax is 20%.
Remember that legally structuring your company has other benefits: to apply for the majority of commercial loans you will be asked as one of the requirements to present the proof of registration of your company.
Tip 3. Claim All of Your Allowable Expenses and Tax Free Allowances
The bad news is that you have to pay taxes; The good news is that there are many tax deductions available for small business owners. You can significantly and legally reduce what you have to pay in taxes, but you should know these deductions and know how to use them to your advantage. This may be the key to a successful tax return.
You must ensure that all items that you declare as business expenses are in effect considered as HMRC allowable deductions. Some categories are clear: the office supplies, equipment, or software that you purchased during the tax year. They are deductions. A vehicle that you have bought for your family is clearly not. Other items are more complected such as company car benefits, charitable donation, entertainment etc.
Make sure you claim £2000 for your dividend allowance, £1000 for save income allowance, and £12500 for your personal allowance.
Tip 4. Separate Your Business Expenses From Your Personal Expenses
This is essential to keep an accurate record of the expenses that can be deducted from your taxes. The best way to keep your personal expenses and your company’s expenses divided is by opening separate bank accounts and using separate credit cards for everything. Use your common sense when using your pleasure”? It applies perfectly here: if you attend a seminar related to your industry, buy your plane ticket with your commercial credit card and use the receipt as a deduction on your taxes. But if you are going to have a beer with your seminar colleagues after the end of the course, simply pay with your personal credit card.
Once the time comes to file your taxes, be sure to separate your business expenses from your personal expenses. And remember that separating your business account from your personal account not only has advantages when filing your taxes: having a commercial bank account is one of the basic requirements to apply for a commercial loan, and it is also the first step in building your credit commercial and open your company to new opportunities.
Tip 5. Put Yourself on Your Company’s Payroll From the Beginning of The Tax Year.
You do not need to pay tax if you put yourself on payroll and get paid less than £8,632 per year or £166 per week. If your yearly earning is less than £12500 you just need to pay National Insurance only.
Tip 6. Buy a Vehicle or Make the Best of Your Existing Vehicle
Many business owners already know that the mileage you cover for business purposes is tax-deductible. But you may not know this: if you use a VAN or commercial vehicle for your business, you can claim 100% as in your business expenses under the rule of annual investment allowance. If not then the deduction for depreciation can be great tax savings, of course, depending on the cost of the vehicle itself and the percentage of use that you use for commercial purposes.
Maybe the idea of purchasing a van is not suitable for your business. If you use your own car then you can claim HMRC authorised millage allowance. You can also avoid higher tax payment by purchasing a car under your limited company’s name. However, company car is subject to benefits in kind which is a complex area. As always, keep all receipts related to your vehicle and use your commercial credit card for those expenses. Keep in mind that driving from home to work is not tax-deductible!
Tip 7. Defer Your Profit
A lot of large scaled corporation save millions by moving their profit for the next accounting period. Corporation tax rate will be reduced by 1% from April 2020. Therefore, you can save 1% on your corporation tax bill by deferring your business income for the following accounting period (subject to the amount of profit). You can reduce your profit for the current year by delaying the completion the sales so it can fall onto the next accounting period. You can do opposite for all of your purchases.
Tip 8. Include Your Children and Spouse on Payroll
However, doing this is totally viable. Most small business owners do not realise that paying their children for the services provided in their company is a tax saving tool. For example, if your child is under 21 and you are a sole trader or have a limited company, you or your company is not required to pay employer NI. In addition, your child’s wages expenses is the standard expense of your business.
You can also add your spouse on the payroll in the same way, but only do so if he or she is not working elsewhere and wants to contribute her personal allowance. However, if your children or spouse have a full-time job then putting them on payroll will not make any sense as they will be on basic rate (BR-20% TAX).
Tip 9. Treat Your Employees Right and Claim Expenses
Most of the staff benefits are tax deductible for your business. Some of the benefits are tax free and beneficial for both employees and the employers. Most common tax free benefits are below:
- Christmas gift (less than £150)
- Meals in a staff canteen
- Hot drinks and water at work
- A mobile phone
- Workplace parking
- Childcare voucher
- Employer funded training
- Discounted good (Not less than purchase price)
- Bicycles and cycling safety equipment
- Accommodation to perform the job (subject to a complex accommodation benefits rules)
Tip 10. Seek the advice of an accountant
If you still have questions about how to file your company’s taxes or do not feel safe preparing them yourself, simply choose to hire a certified accountant. This is also the best option for those business owners who not only wish to file taxes, but also require accounting services throughout the year. A professional accountant can help you not only with the tax questions you have, but also with your doubts about the structure of your company, as well as providing guidance for managing your business finances. It is also the most suitable option for companies with a more complex structure, or simply for those business owners who wish to save time.
Take advantage of these 10 tax tips and strategies to get the most out of the tax saving schemes. Do you really want to benefit your business? Then, transform these tips into constant habits. By keeping your records organised and being proactive in everything related to taxes, you will not only reduce the stress and anxiety related to the business tax. You can also learn more about how your own business works and grow your business