How to manage your taxes effectively as a small business
Businesses, whether small or large, all need to manage their taxes properly. With wide-reaching implications coming from inadvertently dodging tax bills, it’s important to ensure that your compliance procedures are watertight.
But for the 5.47 million small businesses in the UK, sometimes this is far easier said than done. If you’re not sure how to best manage your taxes, read on for our top tax tips.
Compliance is key
When it comes to tax, compliance is king. As a small business, it’s your responsibility to ensure you’re complying with financial regulations – whether that’s VAT compliance or general financial and tax matters.
It’s important to keep a close eye on your deadlines to avoid time penalties. If you accidentally miss a deadline or submit inaccurate records, you could easily land yourself in hot water. Even with the best accountant on your side, it’s still your responsibility to keep your accounts accurate and filed on time.
You’ll also want to make sure that you’re keeping records properly. Things like invoices and receipts should all be kept in a safe place for a minimum of six years. If you’re prone to losing paperwork, investing in an online system might be your best bet.
Understand what taxes and expenses your business will pay
Next, it’s time to delve into what taxes and expenses your business will pay. The level of tax you’ll pay depends on your business structure. For example, sole traders usually only pay income tax, which is like being in full-time employment.
Things start to get a little trickier when your business is a limited company. This is because the company itself will pay corporation tax on the profits, which is currently set at 25% in the UK. Then you’ll need to decide how much income you’ll take from the company and your tax bracket.
Know the tax benefits you can take advantage of
It pays to know about the different tax benefits open to you as a business. With various pressures mounting on many small businesses, knowing the different tax options available to you could be the difference between sinking or swimming.
For example, when you set up a business, it might be more tax efficient to be either a sole trader or a limited company. With a limited company, you can usually combine dividend payments with a salary to save money on your tax bill. Not to mention you can claim back expenses!
But the crux of the matter is simple: it’s all about finding what works for you. If you’re not sure, it’s a good idea to speak to an accountant for personalised advice that’s tailored for your business.