Small Business Tax Tips: Maximise Savings and Minimise Tax!

Running a small business comes with its fair share of challenges, but smart tax planning can make a significant difference. Here are some practical, easy-to-implement tips that could save you money and make your business more tax-efficient.

Employ Your Non-Working Spouse

If your spouse doesn’t work, consider employing them in your business. They could help with marketing, administration, or bookkeeping, and by paying them a salary (e.g., £1,000 per month), you can utilise their personal allowance for tax-free income. Just ensure they are genuinely involved in the business!

2. Charge Your Company Rent for a Home Office

If you operate through a limited company and use a room in your home for work, a non-exclusive license agreement allows you to charge your company rent. This can be much higher than HMRC’s flat-use allowance (£360 annually). Typically, businesses can claim £2,000 or more annually, saving around £500 in tax.

3. Use Different Share Classes

Issue different classes of shares (e.g., A, B, or C shares) in your limited company to optimise tax planning for shareholders. For example:

• Gifting small percentages of shares (e.g., 5%) to university-aged children can allow dividends to cover tuition fees tax-free.

• Maximise the basic tax rate band (£50,000) for each shareholder.

4. Tax Planning When Working Abroad

If you’re living and working abroad (e.g., in Dubai), apply for a UK NT (No Tax) code to exempt your salary from UK income tax.

Additionally, if you’re planning to stay out of the UK for at least five years, you could convert retained company profits into a director’s loan account. When you return, you can withdraw these funds tax-free – just ensure you stay out of the UK for the full five-year period.

5. Claim Business Expenses

Make sure you’re claiming for these everyday business expenses:

• Mobile phone and home broadband used for work.

• Mileage allowance: 45p per mile for the first 10,000 miles each tax year.

• Laundry costs: If you work in a field requiring a uniform (e.g., construction), you can claim £7.50 – £10 per week.

6. Income Splitting with Your Spouse

If you’re married, consider splitting your income with your spouse to avoid higher tax rates. This can also help keep your combined income below the child benefit threshold, allowing you to retain your benefits without penalties.

7. Stay Below the £100,000 Threshold

If your income approaches £100,000, try to stop there. Any income above £100,000 reduces your personal allowance, resulting in an effective tax rate of 60%. Instead, divert excess income into pension contributions for tax savings and long-term benefits.

8. Set Up a Pension Scheme

Consider opening a Self-Invested Personal Pension (SIPP) or a Small Self-Administered Scheme (SSAS). These schemes offer excellent tax benefits for both you and your business.

9. Take Advantage of R&D Tax Credits

If your company is involved in innovation or technological advancement, the R&D tax credit scheme can reduce your corporation tax or even provide a cash refund. Make sure to check if your activities qualify.

10. Claim the Employer’s National Insurance Allowance

If your business has a payroll scheme, don’t forget to claim the £5,000 Employer’s National Insurance Allowance. This is often overlooked but can significantly reduce payroll costs.

11. Charge Interest on Loans to Your Company

If you’ve loaned money to your business, charge interest on the loan. You can earn up to £1,000 tax-free interest annually, which is a nice bonus for supporting your company financially.

12. Sell Personal Assets to Your Business

When starting a business, list any personal assets (e.g., laptops, desks, or office chairs) that will be used by the company. Sell these to your business at market value. This allows the company to claim tax relief on the assets, and you can withdraw the money tax-free later when funds are available.

These simple yet effective tips can make a big difference to your business’s finances. Remember, proper planning and advice are key, so consult a tax adviser to ensure you’re taking full advantage of all available allowances and opportunities.