1. Decide on an appropriate tax-efficient structure for the business. The three basic forms of business entity are a sole trader, partnership or limited company. A limited company structure can be more tax-efficient as you can pay a combination of salary and dividends to the owners/shareholders. Dividends do not attract National Insurance contributions. Furthermore, from April 2016 each individual will have a tax free Dividend Allowance of £5,000 (in additional the Personal Allowance of £11,000).
2. Keep it in the family. If you are a family-owned business, and each family member works for the business, ensure that you declare a salary to utilise all their Personal Allowances. If you have children who do some part-time work for the business, pay them a wage. As a rule of thumb, profits should be equally between family members if possible.
3. If you employ people and operate a payroll, ensure that you claim the Employment Allowance. This reduces the Class 1 Employer’s National Insurance Contributions by up to £2,000 pa. If you Employer NICs are less than £2,000 pa, you won’t pay anything. Some payroll packages don’t claim this automatically, so ensure that you tick the appropriate box.
4. From April 2015 employers with employees under 21 do not have to pay Class 1 Employer’s National Insurance Contributions for those employees up to the Upper Secondary Threshold. Make sure that you have classified the employee’s National Insurance letter correctly in order to ensure that the payroll software reflects this Nil rate. For example, the under 21 standard rate letter is M.
5. Ensure that you claim back the VAT element if you’re unlucky enough to suffer a bad debt. Many accounting packages (eg Sage) don’t do this automatically through the software. You have to make a manual adjustment on the VAT return.
6. If your turnover is under £150,000 pa, then you could actually make a profit using the flat rate scheme for VAT. All industry sectors are assigned a VAT %. Furthermore, you will receive a discount of 1% in your first year of trading.
7. Think about the timing of claiming capital allowances on fixed assets. If you’ve made only a small profit in a particular year, then there’s no point in claiming capital allowances if they reduce the profit below the level of the Personal Allowance. You don’t have to claim the full amount of the allowance available. Any unclaimed amount is deferred for use in following years.
8. Business rates is also a tax. Check your neighbours’ rates bills on the Valuation Office Agency website here
to check that you’re not paying a higher rate per square foot than them. If you are, then you may well have grounds for an appeal.
9. R&D tax relief is not just available for men in white lab coats. The definition of R&D is wider than most people realise. It is available for many industry sectors, including manufacturing, retail, technology, media, transport,etc. Tax relief up to a whopping 225% of the eligible spend is available (ie cashback!)
10. If you work from home (perhaps you have a room designated as an office), make sure that you claim an appropriate portion of the property costs as business related and therefore tax allowable. This includes rent or mortgage interest, council tax, water rates, electricity gas, insurance, telephone and internet costs.