Every year, hundreds of businesses are set up. Some start it to pursue their passion, while others start it to avoid the hassle of switching between jobs. Regardless of the reason for starting a business, many entrepreneurs find it hard to get hold of tax-saving strategies.
Taxing rules are more complex for business people than commoners. Tax-efficient strategies help you retain more cash, which you can employ to run your business operations more smoothly.
Here are some of the most crucial tax-saving tips every small business owner should follow:
- Withdraw your salary in a more tax-efficient way
If your business has a separate identity, you should decide on the salary carefully. Withdraw it using a combination of basic pay and dividends. It is always suggested that you withdraw a tax-exempted salary. It will help you avoid paying personal taxes. Likewise, if your spouse is the director of the company, their salary should be tax-efficient, too.
Consult a tax planner to understand how you can make the most of tax-efficient techniques so you do not struggle to meet your personal and business expenses while withdrawing your tax-exempted salary.
- Keep track of all your business expenses
All business expenses can be claimed in a tax return; however, you will have to submit the acknowledgement slip of each expense. Do not let go of even a tiny expense, for instance, the petrol you filled in your car or a book you bought with regard to your business. As long as you have a slip to justify your expenses, you are entirely allowed to claim them.
You might not realise this fact, but claiming expenses in tax returns reduces the size of your gross profits, and hence, low tax is calculated. A chartered accountant can help you better understand how you can claim expenses to save taxes.
- Do not ignore vehicle expenses
If you have a vehicle dedicated to your business, you will not have to go through hassle while claiming vehicle expenses, which include fuel costs to maintenance bills. The problem arises when the vehicle is being used for personal as well as business expenses. However, vehicle expenses are deductible as long as they have been met for business purposes. For instance, your car used to visit a client or to attend business meetings. However, this is feasible only if you are able to prove that the car was used for your business expenses.
In addition, you can also claim depreciation. This is, in particular, beneficial for new cars. You can claim a full year’s allowance even if the car is bought at the end of the financial year.
- Home office costs
Nowadays, many entrepreneurs run their businesses from home. One of the benefits of operating from a house is that you do not have to rent or buy a commercial space. Of course, it saves you a lot of money. As far as it is about employees, you can ask them to work from home too. However, claiming business expenses is a serious challenge.
For instance, if you dedicate one of the rooms to your business, you can claim part of the energy bills. How will you do this? Suppose you have four rooms in your house, and one of them is used by you for business work. You can claim 25% of energy bills in your tax returns.
- Remuneration to employees and family members
The remuneration you give to your employees is also tax deductible. In order to gain tax benefits, you should also offer your employees bonuses and other monetary benefits such as health insurance and a workplace pension scheme. Similarly, if you use the services of a family member, make sure you give them remuneration, which you can claim while filing the return of tax benefits.
This strategy is effective for companies in which family members are shareholders. The money you pay to them technically lies with you, and you manage to claim that expenditure in your tax return. It is a kind of situation where money is going outside, and despite that, you claim the expenditure.
- Travel and related expenses
You can also claim business tour expenses. It is much easier to claim when you are travelling on a flight or train. Submitting a copy of your ticket, you will be eligible to claim taxes. Whether it is a domestic trip or an international journey, business travel expenses are deductible. All these expenses include transport costs, accommodation costs and related fees. Make sure that these expenses must be completely associated with the business.
However, just because these expenses can be claimed, it does not mean that you will choose a hotel with luxurious amenities. It is not necessary to choose a business-class flight. All these factors are also taken into account while determining your eligibility.
Make sure you have all receipts so you do not struggle to get the claim. In the absence of documentation, you will not be eligible to get your expenses deducted to abate the table amount.
- Interest on loans
You might not be aware of this, but you can claim interest payments on loans and overdrafts. However, they are eligible for deduction as long as they are related to your business. For instance, interest payments on long-term business loans in the UK are eligible to claim taxes. Still, personal loans that you took out for personal expenses will not be eligible for a claim in your business tax return.
Although there are various large loans such as mortgages and auto loans, they are disqualified for tax deduction as they are not meant to be used for the business. However, interest on auto loans and depreciation can be claimed if you have bought it exclusively for business purposes.
- Keep up with changes in tax laws
You should keep abreast of tax laws. Every year, certain amendments are introduced. Make sure that you are in the loop about those updates because they will help you frame tax-saving strategies. Be in constant touch with your accountant to help you understand what you can do to save money on taxes.
At the time of taking out a loan for your business, consult a business loan broker because they will help you arrange the best loan deal. As you can claim interest on business loans, it does not mean that you will not look for a cheaper deal.
The bottom line
There are several ways to save your business taxes. Keep yourself updated about tax laws, and make sure that you make a robust tax-efficient strategy. An accountant can help you determine ways to save taxes.
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