As the end of the tax year approaches, small businesses in the UK typically put their finances under the microscope. With careful planning and a good understanding of tax regulations, small businesses can take advantage of various opportunities to reduce their tax bill and make savings.
According to a study by the Federation of Small Businesses, nearly half (48%) of small businesses in the UK believe that the administrative burden of tax compliance is the biggest barrier to growth. In this article, we explore some of the strategies that small businesses can use to save money before the end of the tax year.
Small businesses can maximise allowable expenses by ensuring that they are claiming all the expenses that they are entitled to. This includes expenses related to travel, office expenses, and professional fees.
Keeping accurate records and receipts of all expenses is crucial to ensure that nothing is missed. In fact, small businesses should aim to keep receipts for at least six years. It is also important to ensure that expenses are legitimate and have genuinely been incurred for business purposes.
Small businesses can invest in new equipment and assets before the end of the tax year to take advantage of tax allowances. The Annual Investment Allowance (AIA) allows businesses to claim tax relief on the full cost of qualifying assets, up to a certain limit.
For the tax year 2022/23, the AIA is £1,000,000. This means that small businesses can deduct the cost of qualifying assets from their profits before calculating their tax bill, reducing the amount of tax they will have to pay.
Tax credits and reliefs allow small businesses to reduce their tax bills. Small businesses should seek professional advice to ensure that they are taking advantage of all the tax credits and reliefs that they are entitled to.
For example, Research and Development (R&D) tax credits can be claimed by companies that carry out R&D activities, and can provide a significant tax reduction or cash repayment.
Employer contributions to a registered pension scheme are tax-deductible, and can also provide a valuable employee benefit. Small businesses can make pension contributions on behalf of their employees to save money in a tax-efficient way.
Small businesses can defer income by delaying the invoicing of customers or postponing the receipt of income until after April. Deferring income means delaying the receipt of income until after the new tax year begins. This can help to reduce the tax bill for the current year, as the income will be taxed in the following year.
Small businesses can claim tax relief on losses. Losses can be carried forward and set against future profits, reducing the amount of tax that is payable. Losses can even be carried back and set against profits from the previous year, which may result in a tax refund.
If your small business is struggling to pay their tax bill, you should contact HM Revenue and Customs (HMRC) as soon as possible as they may be able to offer a Time to Pay arrangement. This agreement allows businesses to spread their tax payments over a longer period of time.