No one wants to give more to the taxman than they have to! Getting your tax strategy right can make a huge difference to your bottom line. Whether you’re a seasoned entrepreneur or just starting to see serious profits, being smart about tax means keeping more of your money working for you. Here are some practical ways to make sure you’re not paying more tax than you need to.
Make the Most of Allowances and Deductions
Tax rules can be complex, but they do offer plenty of opportunities to reduce your bill if you know where to look. Many business expenses can be deducted before tax, including things like professional fees, marketing costs and even some home office expenses if you work from home. Keeping track of these and making sure they’re properly recorded can have a big impact on what you owe.
Beyond deductions, your tax-free allowances are a key part of minimising your tax bill. From your personal allowance to dividend allowances and even capital gains tax exemptions, making sure you’re using all the tax-free benefits available to you can lead to significant savings. A well-planned mix of salary, dividends and pension contributions can make a real difference to the tax efficiency of your earnings.
Keep Business and Personal Finances Separate
It sounds simple, but mixing personal and business finances can cause all sorts of tax headaches. Having a dedicated business account not only makes bookkeeping easier but also ensures you’re claiming everything you’re entitled to. Clear records mean no scrambling around at tax return time and, more importantly, no accidental oversights that could cost you money. It’s also sensible to save tax on your dividends in live time so there’s no nasty surprises in January.
For those earning at higher levels, consecutive investments can also be a powerful tool for managing income tax. Making pension contributions, investing in ISAs or even looking into venture capital schemes can help reduce taxable income while growing your wealth in a tax-efficient way. Tax planning isn’t just about what you pay today but also about setting yourself up for future financial success.
Consider a SSAS
A Small Self-Administered Scheme (SSAS) is a multi member pension scheme for trading businesses. Often set up with all the family members in the business as members trustees, SSAS allows you to pool your pensions together should it be appropriate to consider wider joint investments. This might include commercial property for example, such as purchasing your business premises. Or it could allow the company to borrow from the pension in the future to grow your business without going to a bank. Overall they can be a hugely important extension to the family business dynamic allowing you to grow both your business and your retirement whilst keeping your corporation tax to a minimum.
Carry Forward
I am constantly baffed by how few people have heard of carry forward, but it can have huge positive impacts on both your business tax position and your retirement plans, particularly if you have had a particular successful year. Carry forward allows individuals to contribute more to their pension by using any unused annual allowance from the previous three tax years. This can be particularly useful for those with fluctuating income, business owners looking to make a large contribution, or individuals who have exceeded the current year’s allowance.
To qualify, you must have been a member of a UK-registered pension scheme during the years you’re carrying forward from. The total contributions (including employer payments) must not exceed your earnings for the year in which you’re making the contribution.
Using carry forward can reduce tax liabilities, provide efficient retirement planning, and help high earners avoid annual allowance charges.
Investment of retained profits
If you have plenty of cash in your business but perhaps earmarked for something on the horizon medium term, there is absolutely nothing stopping you investing that money within the company. Corporate investing accounts are very common, whether it is on an investment platform in the conventional market, or short term loans to other businesses in exchange for a fixed rate return. Leaving excessive funds in cash however, undeployed, will erode the value of that cash over time due to the impact of inflation. So if you have more cash than you need for typical cashflow, but it’s not the right move to deploy that to a pension for example, then an investment account at the right risk level for the company and its investment horizon may be the next step.
Get the Right Advice
There’s no one-size-fits-all approach when it comes to tax, and what works for one business owner might not be the best option for another. That’s where working with a financial adviser can make all the difference. Having someone who understands your business, your goals and the ever-changing tax landscape means you can focus on running your business while knowing your tax affairs are being handled efficiently.
At Seymour Financial, we help business owners make sense of their finances and put strategies in place that work for them.
If you’re looking to make your money work smarter, get in touch and let’s talk about how we can help you keep more of what you earn.
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