Opening a business can be a scary experience; minimising the tax bill is a great way to maximise chances of success.
For a new start-up business, there is so much to remember and so many new skills to learn that it can often seem very daunting. Taxation is one of the larger costs to any business, however, and should certainly not be overlooked during this hectic time. Here are 10 tips that will help to minimise tax for any business.
- Including Allowable Business Expenses - Make sure to include all allowable business expenses. New entrepeneurs are often unaware of some of the expenses which can be claimed, a good example of this being entertainment allowances. A good accountant will be able to help with this.
- Offsetting a Previous Loss - It is often possible to carry forward a loss from one tax period into the next period. This can then be offset against the next year's profits to reduce the tax payable for that year.
- Purchase Hire - The purchase price of any asset purchased through purchase hire can often be used in the capital allowances calculation as though it was bought with cash.
- Spouse's Income - If a spouse has no other income, they could earn a sum equivalent to their tax-free allowance by working in the business. This could save money on tax which would have usually been paid through another employee.
- Employee Benefits - Instead of taking a taxable salary, it is possible to identify non-cash benefits for both the employer and employees. If done wisely, there is lots to be saved on tax bills here.
- Deferring Capital Gains Tax - Capital gains tax can be deferred if it is determined that another asset will be bought with the proceeds in the future. This 'Rollover Relief' can be used up to three years after the sale of the origianl asset.
- Pension Scheme - By paying into a pension scheme, taxable profits are reduced. This allows funds to stay useful without being taxed. It is a legal requirement to set up a pension scheme under certain circumstances, and if employees demand it.
- Maximise Depreciation - When buying capital assets, bring forward all spending plans so that depreciation can be maximised. This is the part of the cost of the asset that can be set against tax - usually around 20%.
- Salary or Dividends? - In a limited company, money taken out through dividends or a salary are both taxed differently, and both have thier advantages and disadvantages. Examining which one is best for a particular company can reduce tax burdens.
- Claiming Back Expenses - Companies can claim back expenses which have been acquired up to seven years before trading commenced. For the purposes of tax these will be treated as though the company had always been trading.
For any entrepeneur, using these tips regularly can help save precious money. For start-ups, where cash-flow is often tight, these could mean the difference between profit and loss.
The copyright of the article Ten Ways to Minimise Tax in Entrepreneurs is owned by Carl Hayes. Permission to republish Ten Ways to Minimise Tax must be granted by the author in writing.
