Tips to Save Tax
| Tips to Save Tax |
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Keep accurate records This may surprise you as my top tip but by maintaining accurate records you avoid unhealthy attention from the Inland Revenue and Customs and Excise and if they do call everything is so much easier to explain and investigations conclude speedily. This reduces costs and avoids penalties. There are enough legal ways to reduce your tax so use them not the illegal ones. Don't be tempted to take cash and not put it through your books. The Inland Revenue has ways to pick up on this. Always raise invoices and number them sequentially. Maintain a separate business bank account and don't muddle business and personal expenditure. Bank all business receipts intact into that account, both cash and cheques. Get a decent Accounting package, e.g. QuickBooks and use it. Find a good Accountant and follow his advice. Stick with your Accountant. He knows your business and will find it easier to answer queries from a number of years ago. Form a Limited Company Companies pay less tax (currently 21% for small businesses) than individuals (20% to 50%) and profits extracted as dividends attract no National Insurance and no additional tax for Basic Rate taxpayers. Companies are subject to a tougher regulatory regime and you will have to deal with Company Secretarial matters, a Payroll and an additional (Corporation) Tax return. These will attract extra costs, typically £600 to £1200 but the savings can be worth it. Employ your partner / spouse If your spouse is unemployed think about using them for some work. For example they could deal with orders, raise invoices, do the banking, etc. and pay a salary that is sufficient to use their tax free allowances and 10% band. You will need to set up a Payroll and submit an annual return and whilst this may cost a little money (typically £150 per annum for a small payroll) the tax savings will make it worth while. If you are trading as a limited company and your spouse is actively invloved in the business then they could be shareholders and be remunerated by dividends also. Take out a pension Why not! The Tax man will pay 20% or 40% for you depending on your tax band. You can't make better returns than this legally anywhere. Consider Flat rate V.A.T. scheme Not only will this make the job of preparing your V.A.T. return simplier and quicker but depending on the amount of input VAT you pay and the flat rate percentage you could actually pay significantly less V.A.T. |