Running a business can be a juggling act financially. You want to pay your fair share of taxes, but you also want to ensure that you’re running your business efficiently so that you aren’t paying more tax than you need to.
By structuring your business and spending in the right way, you can become tax-efficient and strengthen your overall financial health.
Business taxes
What kinds of taxes you pay, and how much depends on how you’ve set up the structure of your business. Sole traders, partnerships, and limited companies are all governed by slightly different tax rules. A professional company such as Bryden Johnson will be able to advise you on the tax implications or your business setup.
For example, if you’re a self-employed sole trader, your taxes will be paid through income tax. If you set up your company as a limited company, then you are creating a legal entity that is separate from you. The company will need to pay tax on profits. How you receive money from this company is up to you, whether it is as a monthly salary or dividends.
Depending on your type of business, premises, and a number of employees, you may also have to pay National Insurance contributions, VAT, and business rates on your premises.
What can be classed as expenses?
Over the years, HMRC has tightened up on what can be classed as legitimate business expenses as people were able to pass off virtually anything as a business expense. Keeping a check on your expenses is a great way to track spending and reduce your tax bill legitimately.
Everyday office costs
Purchases for your business premises can include equipment, supplies, stationery communications contracts for phones and broadband. Your rent and bills also count.
Business travel
Travelling to see clients, prospects, suppliers, or to conferences all count.
Marketing & advertising
Anything you spend on the promotion of your business can be classed as an expense. This can include website building and hosting costs, social media promotion, advertising, and sponsorship.
Insurance and charges
As a business, you’ll have multiple types of insurance and bank charges. These can be used to offset your tax bill.
What you cannot claim as a business expense
There are different rules for sole traders and limited companies when it comes to legitimate expenses. If you’re a limited company, you cannot claim:
Entertainment
If you’re wining and dining clients or potential clients. Then this can’t be claimed as a business expense. The same goes for event hospitality.
Political donations
You might decide to donate to a particular candidate or political party as a business because their ideology matches that of your own, or they are a champion of your area or industry. However, you cannot use this donation to reduce your tax bill.
Charity donations
Donating to charity is not something that is viewed as a business expense when it comes to filing your tax return. However, charity sponsorship is different. If you sponsor a specific charity event, then it can be seen that you are getting a direct business benefit from this through advertising, PR, etc. In this case, you can class this as an expense.
Personal memberships/leases
Perks for employees can be tricky when it comes to how these are managed or declared. It is easier to have your HR department set these up properly rather than have people sorting out their own and paying for it on the company card or applying for reimbursement. This includes gym memberships, entertainment subscriptions, and personal leases on cars, etc.
Tax relief
There are a few tax relief programs that you might be eligible to use. This include:
Patent relief
If your business holds or has developed any patents, then you might be eligible to claim relief on the profits you have made as a direct result of the patent.
R&D
If you’ve invested in research and development as a business to develop your service or products, then you can claim a certain percentage as a tax credit. The premise behind it is to encourage companies to continually innovate and develop the next generation of products and services.
Business rate relief
You might be able to get a substantial business rate relief if your business uses a property with a relatable value of under £15K.
Finances and taxes can be complicated, which is why many companies don’t investigate what’s available to them when it comes to tax reliefs of legitimate expenses. Spending time getting it right can mean a huge financial boost to your business.
