Saving money on taxes is an effective way to retain maximum business profits. There are many strategies that can help a company to reduce taxes.
In this post, we have listed six tax-saving tips for small limited companies in the UK. Make sure that you talk to one of the professional accountants for the small limited companies before applying tax-saving strategies listed in this post.
1. Make Pension Contributions
Making contributions to a pension scheme can result in tax savings. This is because pension contributions are tax-deductible. The HM Revenue & Customers (HMRC) allows pension contributions to be deducted from employee tax accounts. It’s recommended that you talk to a professional accountant for small limited companies to make the most of this tax-saving strategy.
2. Choose Flat Rate VAT
You need to register for VAT in case the turnover reaches more than £85,000 in the previous tax year for 2018/19. Registering for VAT is necessary to avoid paying fines to the HMRC. In addition, to save money on taxes, you should consider opting for the flat rate VAT scheme. This will not only make accounting for VAT easier, but it may also result is less tax depending on the VAT charged and reclaimed.
Under the flat rate VAT scheme, taxes are paid on turnover based on a flat rate. HMRC has fixed different flat rates for different industries.
For instance, the VAT rate for IT consultants is 14.5 percent, while it is 12 percent for property managers and Estate agents. Your company will be able to reclaim the VAT that is charged to customers, plus avail 1 percent discount that is allowed by HMRC for the first 12 months after registration.
3. Delay Dividend Declaration
Another strategy to save taxes is to delay the declaration of dividends. In case you have reached the tax rate threshold in the present tax year, you can save some amount if you delay dividend declaration until the next tax year.
4. Claim on Investment Goods
Businesses are allowed to claim capital allowance on plant and machinery such as:
Vehicles used for business
Costs for demolishing plant and machinery
Changes in the business to install plant and machinery
Fixtures such as bathroom suites and fitted kitchen
Parts of the building that are ‘integral features’, including escalators, lifts, heating systems, air cooling systems, hot and cold-water systems, electrical systems, and solar shading
You can deduct the cost of plant and machinery from your taxable profits. However, you can’t deduct items that are on the lease, buildings, and entertainment business items such as karaoke and yacht. The government allows a deduction of up to £200,000 annually in plant and machinery in the 2018/19 tax year.
5. Company Cars
Instead of using a company car personally, you should consider owning a company car. In this way, you won’t be taxed on the benefit-in-kind and you won’t have to pay Class 1A National Insurance.
You should consult with accountants the small limited company to know more about this tax-saving strategy. Keep in mind that owning the car personally will allow you to not only avoid the benefit-in-kind, it will also allow you to claim the mileage at the rate of 45p/25p depending on the mileage.
6. Bonuses Paid to Staff
Paying bonuses to staff can also result in tax savings for small limited companies in the UK. Provisions should be made for specific bonuses in the annual accounts. The provisions should be recorded in the board minute. However, make sure that the staff bonuses are paid before the end of the tax year. Also, the bonuses should be charged to NI and PAYE as appropriate.
The above tips are just the basic tax-saving strategies for small businesses. Hiring an experienced accountant for small limited companies will let you advanced strategies to save on taxes. Professional accountants who specialize in offering tax services to small limited companies in the UK have in-depth knowledge about the tax rules. They can guide you in making the moves that will result in maximum savings for your company.