Small Business Tax Planning: How to Make Your Business More Tax Efficient?

The tax your business will pay will depend on how your business is structured. A sole trader or a partnership will be very similar to how you pay income tax as an employee, which is known as income tax.

If your small business is registered as a limited company then things are a little different. The company will have to pay corporation tax on the profits you make. If you take money from the company to pay yourself then you may be taxed again. Additionally, if your business makes a financial gain on certain investments or property, you may be liable to pay capital gains tax. Some other taxes you may pay are business rates, VAT and employers national insurance contributions.

Hiring an accountant to manage your tax can help ensure you are paying tax as efficiently as possible, ensuring you don’t pay too much or too little. Paying too little tax can result in penalties from HMRC.

One of the most common ways businesses reduce their tax bill is through legitimate business expenses, they can include:

• Business travel, including fuel, public transport costs, parking fees etc.
• Office costs, including phone bills, heating costs, lighting, stationary, equipment and furniture.
• Clothing, uniform for staff or any clothing you wear for work.
• Marketing, any advertising or marketing costs.
• Staff costs, including salaries and subcontractor costs.
• Stock, anything you buy to sell can sometimes qualify.

These are just some of the business expenses you can use to reduce tax, but hiring an accountant can help identify all areas.

When a business makes a loss in a tax year, they can claim tax relief from corporation tax by offsetting the losses against profits. By effectively managing your tax liabilities, you can ensure that your business remains financially healthy even during loss-making periods. This is done via your company tax return form or your self-assessment tax return if you’re a sole trader or partnership.

You can carry over losses to offset profits against future years, reducing tax you pay in another year. If relevant, you can carry losses back to previous years profits. When it comes to offsetting losses against your profits, an accountant can help choose the best solution for you to ensure you maximise the benefits while ensuring everything is completed and submitted correctly.

Reducing your income tax bill requires a combination of tax planning strategies and smart financial decisions. One effective way to minimise your income tax is to maximise your pension contributions. By contributing to a pension, you can reduce your taxable income and lower your income tax liability. Additionally, you can claim tax relief on charitable donations, which can also help reduce your taxable income. Another strategy is to utilise tax-free allowances and exemptions, such as the personal allowance and the capital gains tax allowance. By keeping accurate records of your business expenses, you can also claim tax relief on these expenses, which can help reduce your taxable income.

The capital gains tax allowance is a valuable tax relief that can help reduce your tax liability. For the 2023/24 tax year, the capital gains tax allowance is £6,000 per person, per year. This means that if you make a gain on an investment, you can claim tax relief on the first £6,000 of that gain. To maximise this allowance, it’s essential to keep accurate records of your investments and to consider investing in tax-efficient investments, such as ISAs and pensions.

Similarly to reducing tax through legitimate business expenses, there are also some areas you can get tax reliefs to help grow your business. For example, some areas include:

• Business development and research, the UK government currently allows small businesses to claim tax credits for research and development. This is to boost innovation and help small businesses succeed.
• Employee allowance, this is another government initiative that allows eligible employers to reduce their National Insurance liability (if they pay Class 1 National Insurance) by up to £5000 (this is to be increased to £10,500 from April 2025).
• Patent tax relief, this is where businesses can claim tax relief on any profits generated by patented inventions. We recommend hiring an accountant to help you claim this if you have any eligible patents.
• Small business rate relief, if your business uses one property that has a relatable value of £12,000 or less you can help reduce your business rates bill.

Even though hiring an accountant comes at an extra cost (which you can claim as an allowable business expense!), you may find you end up saving money through being more tax efficient. An accountant to ensure you are paying the correct amount of tax and identifying any opportunities to reduce your tax bill. Not only this but they will also ensure you complete everything on time so you don’t receive any penalties or fines from late submissions. Hiring an accountant to take care of your finances allows you to focus on the more important areas of your business.

Here at Cloud Accountants, we have helped small business owners all over the UK, with a number of our different services, including helping them be more tax efficient. Whatever you’re looking for we can help. We will handle everything from your company formation through to corporation tax preparations and submission, giving you the time to do what you do best – running and growing a successful business.

CloudAccountant are platinum partners with the award-winning accounting software Xero and FreeAgent. We also work closely with transactional software systems such as LinkMyBooks, A2X and Dext to support multiple aspects of your business. Whether you are selling online or managing your expenses, we have software integrations that can help record information quickly and efficiently.

As a chartered accountancy practice registered with the ICAEW, our friendly team of accountants are trained in customer services, meaning they can convey the often-complex nuances of accounting in a simple and straightforward manner.

And just because we’re online accountants doesn’t mean our service will be any less personable. If you choose to be with us, you’ll get a dedicated account manager who you’ll have unlimited access to for one-to-one support via email, telephone and video call. You can even come in and see us if you like – we’re always happy to stick the kettle on.

Get in touch by emailing info@cloudaccountant.co.uk or by calling 01625 546 232 and one of our team will be happy to discuss your accountancy needs.