Capitalising on tax breaks for small businesses

Small businesses are always looking to save costs where they can and make their business more efficient in order to reduce outgoings. Looking at tax savings tactics can be one great way of achieving this.

There are a variety of ways small businesses can capitalise on tax breaks:

Get clued up on VAT – Many small businesses aren’t aware of the Flat Rate Scheme and its benefits. Under the scheme a fixed rate of VAT is paid to HMRC, and the business is allowed to keep the difference between the amount of VAT charged to customers and what is paid to HMRC. However, VAT can’t be reclaimed on purchased under this scheme (with some exceptions of capital assets over £2,000).

Paying yourself – There are various ways to do this, and there are tax savings to be made dependent on how you are paid and the amount. For instance, paying a mixture of salary as well as dividends to the company owner can be tax efficient. However, care needs to be taken not only to keep within what HMRC allows, but also diligent book and record keeping is required on a regular basis to monitor this adequately. There are also benefits in kind to consider. A low emission company car can be tax efficient for small business owners, but it is best to seek advice from an accountant or adviser on this.

Benefits for staff – using ways of treating staff as a way to save tax and benefit staff is a win/win situation. These can include:

Tax free childcare vouchers – there is a new scheme set to replace the existing employer scheme early in 2017, and may cover up to 20 per cent of childcare costs. However, those wanting to sign up to an employer scheme can still do so. This can be a good way to treat staff and make tax savings.

Suggestion scheme awards – rewarding a member of staff for making a suggestion that helps the business, leading to financial or efficiency benefits (and the suggestion must be adopted) is allowed – to the value of £25, tax exempt under the Encouragement Awards scheme.

Diligent book keeping – this underpins everything in business. From monitoring cash flow and business planning to ensuring no expense claims can be questioned by HMRC, which will directly affect tax savings. If this isn’t something you’re prepared to do, maybe consider employing someone that will.

It is always advisable to seek professional advice around tax savings to ensure you are doing everything by the book whilst maximising the opportunities for tax savings. Whether a financial advisor, accountant or business adviser, making the most of this kind of help will pay dividends in the long run.