Tax planning is an essential aspect of running a successful small business in the UK. As a partner at Wellers, I have had the opportunity to work closely with many small businesses and SMEs, and I have seen firsthand the impact that effective tax planning can have on their growth and success. In this article, I will be sharing some valuable tax planning tips that can help small businesses in the UK save money and stay ahead of the game.
One of the key areas of tax planning for small businesses is Corporation Tax. This is the tax that companies pay on their profits, and it is essential to understand how it works in order to minimize its impact on your business. The current Corporation Tax rate in the UK is 19%, but this is set to decrease to 17% in 2020. This is good news for small businesses, as it means they will have more money to reinvest in their growth and development.
One way to reduce your Corporation Tax bill is by taking advantage of tax reliefs and allowances. For example, the Annual Investment Allowance (AIA) allows businesses to claim 100% tax relief on qualifying capital expenditures, such as equipment and machinery. This can be a significant tax saving for small businesses, so it is important to keep track of your capital expenditures and take advantage of the AIA.
Another tax planning tip for small businesses is to make use of the Research and Development (R&D) tax relief. This is a government initiative that rewards businesses for investing in research and development activities. Small businesses can claim up to 230% tax relief on qualifying R&D expenditures, which can make a significant difference to their bottom line. Many small businesses are not aware of this relief, so it is worth exploring if your business is eligible.
Business rates are another area where small businesses can save money through effective tax planning. Business rates are a tax on non-domestic properties, and they can be a significant expense for small businesses. However, there are various reliefs and exemptions available that can help reduce your business rates bill. For example, small businesses with a rateable value of less than £15,000 can claim Small Business Rate Relief, which can reduce their rates bill by up to 100%. It is also worth exploring if your business is eligible for other reliefs, such as the Retail Discount, which can provide a 33% reduction in rates for retail properties.
National Insurance (NI) is another tax that can have a significant impact on small businesses. As an employer, you are required to pay NI contributions for your employees, and this can be a significant expense. However, there are ways to reduce your NI bill through tax planning. For example, you can take advantage of the Employment Allowance, which allows businesses to reduce their NI bill by up to £3,000 per year. This can be a significant saving for small businesses, so it is worth exploring if your business is eligible.
In addition to these specific tax planning tips, there are also some general principles that small businesses should keep in mind when it comes to tax planning. Firstly, it is essential to keep accurate and up-to-date records of all your business income and expenses. This will not only help you to stay on top of your tax obligations but also make it easier to identify areas where you can save money. Secondly, it is important to plan ahead and not leave tax planning until the last minute. By planning ahead, you can take advantage of all the available reliefs and allowances and avoid any unnecessary penalties or fines.
In conclusion, tax planning is a crucial aspect of running a successful small business in the UK. By understanding the various taxes that apply to your business and taking advantage of reliefs and allowances, you can save money and reinvest it in your growth and development. It is also important to keep accurate records and plan ahead to ensure that you are not caught off guard by any unexpected tax bills. As a partner at Wellers, I have seen the positive impact that effective tax planning can have on small businesses, and I encourage all small business owners to make it a priority in their business strategy.
So, if you are a small business owner in the UK, take note of these tax planning tips and make sure to implement them in your business. By doing so, you can not only save money but also set your business up for long-term success. Remember, every penny saved through effective tax planning is a penny that can be reinvested in your business