As we step into the new financial year, businesses must take proactive steps towards effective tax planning. By implementing tax-saving measures, Owner Managed Businesses (OMBs) can optimise their financial resources and minimise tax liabilities.
There are key tax planning strategies tailored for small businesses in the UK for the 2024 financial year. We’ve asked Rebecca Thorley, Client Services Director, to explain more.
Take it away Rebecca
If you currently run an Owner Managed Business, or you’re thinking about becoming one, it’s important to make sure you’re safeguarding your business with essential tax planning.
With the start of a new financial year in full swing, I’ve highlighted below some key points that can help Owner Managed Businesses maximise their tax savings and minimise liability.
Use ISAs and Save for Your Pension
Putting money into an Individual Savings Account (ISA) or contributing to your pension can help you save on taxes. With an ISA, you can invest up to £20,000 a year without paying tax on any interest or profits you make. Plus, contributing to your pension can also reduce your tax bill.
Find Allowable Deductions
Look for business expenses you can deduct from your taxes. This could include things such as:
- Office supplies.
- Travel costs.
- Employee benefits.
The more deductions you can find, the less tax you’ll have to pay- it’s a win win!
If your business operates as a limited company, then utilising reliefs like Full expensing and the Annual Investment Allowance (AIA) when purchasing assets can provide substantial tax savings too.
Time Your Income and Expenses
Try to time when you receive income and when you pay expenses to help minimise your tax bill. For example, if you expect to be in a lower tax bracket next year, you might want to defer some income until then. And if you have big expenses coming up, consider paying them before the end of the tax year to get the deduction sooner.
Choose the Right Business Structure
The way you set up your business can affect how much tax you pay. Sole traders, partnerships, and limited companies all have different tax rules, so it’s important to choose the one that’s best for you.
Incorporating your business or restructuring its legal framework can provide tax advantages, but it’s essential to consider the administrative and compliance requirements.
Manage Dividends and Capital Gains Tax
If you’re a business owner who pays yourself through dividends, be aware of the tax rates and thresholds. Planning for Capital Gains Tax when disposing of assets, like property or shares, to minimise this as much as possible and planning for when the tax will become due.
Take Advantage of Tax Incentives
Last but not least, the government offers incentives to encourage things like research and development, innovation, and investment.
Initiatives like the Seed Enterprise Investment Scheme, Enterprise Investment Scheme, and Capital Allowances offer tax incentives for investment and innovation. Make sure you’re aware of these incentives and take advantage of them if they can be applied to your business.
Here to help
Planning and taking advantage of tax-saving opportunities can help business owners in the UK keep more of their hard-earned money. If you’re unsure about anything, it’s always a good idea to speak to a specialist accountant who can help you navigate the rules and regulations.
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