If you want to reduce your tax bill this tax return time, read on. Because today I’ve got some really easy ways to cut the amount of tax you’ll need to pay, which are SO important to know when you’re a business owner!
It almost feels like HMRC have got it in for us, by setting the payment date for personal tax at the end of January.
You have a lovely time over the Christmas festivities, spending money and doing all the fun things. Then you get back to work in January and meh… you’ve got a tax return to sort out and a tax bill to pay. Joy.
Now, if you’re one of these organised people who fill out your tax return earlier in the year, you’ll know how much money you’re going to need for your tax bill and you’ll have had some time to get the cash together.
But if you’re one of the huge number of people who fill out their tax returns in January, you could well be in for a bit of a shock.
In this blog, I’m not only going to share some ways to reduce your tax bill, but also how to have the money there ready. So you never need to worry about paying your tax bill again!
So let’s deal with the first thing first – how to lower your tax bill.
When you run a business, your expenses are offset against the money that comes in, and what’s over is your profit. The profit is what you pay tax on. There are various things that you can put through the business to lower the amount of tax you pay.
Most people are quite aware of things like stationery and internet costs, mileage for traveling to see clients and other bits and pieces that you need for the office. But there are quite a few things that people don’t know that they can claim, or they sort of think they might be able to but they’re not sure how it works. Basically they don’t have a chance to look at it from a Financial Adviser point of view.
I’ve been a Financial Adviser for a long time (as well as a Money Coach) and there are 3 things we help our clients with, all of which help to cut your tax bill overall.
1: Paying Into A Directors Pension
To be clear, this is not NEST (the workplace pension scheme set up by the government).
A Directors Pension is what you have for yourself and other fellow directors, which gives you better choice of investments and more options and more flexibility.
NEST is ok as a compliant scheme for your employees, but it’s not going to give you the flexibility you need as a business owner to have a retirement where you live in comfort.
Contributions into a pension are counted as a business expense, like any other part of your director’s remuneration package. They are taken off the value of your profit before your corporation tax is calculated. This means that you can end up with a significant amount going into your pension and actually not notice the difference in your balance sheet quite so much, especially if your profits are over £50,000 for the year and you’re paying a higher rate of corporation tax.
You’ll need a specific type of scheme to do this. Not all pension companies accept money in from an employer but for many business owners, it’s a great way to get money out of their business, reduce their tax bill and save for their retirement all at once.
2: Private Medical Insurance
When you’re a business owner and you’re committed to what you do, you tend to drag yourself into work, even if you’re not feeling great. When you’ve got something seriously wrong or you’ve had an accident or injury, sitting at home for weeks on end to recuperate just isn’t on the agenda.
When you’re an employee, you might be quite happy to sit at home for three months waiting for the NHS to get your treatment ready or nursing an injury, because you’re getting paid to be at home. You’re not really emotionally invested in the success of the business either, because it’s not your business.
But when it IS your business, getting treated quickly is something that’s a priority for so many of my clients. Private medical insurance is one of those director’s benefits that can be set up for you by your Financial Adviser.
And although there is a tax implication in terms of benefit in kind (P11D), it generally works out much cheaper overall than paying personally for BUPA or AXA or whichever private medical insurance you choose.
3. Buy Gifts To Reduce Your Tax Bill!
Did you know that if you’re a limited company, you are allowed to buy people gifts from the business?
Yup! These gifts can be up to £50 each. And even better, as a director, you’re allowed to buy yourself gifts.
There are some limits and restrictions on this, as you’d expect. You can’t buy things that can be exchanged for cash. They need to be physical items, and they need to be up to the value of £50.
But the good news is that you can have six of them. So if you want to buy yourself some presents for Christmas or any other time of year out of your business, you can do that six times – 6 x £50. You can do the same 6 x £50 gifts for your spouse, if they are on the payroll. And for any other person, whether that’s a client, a member of staff or whoever… 6 x £50 gifts as well.
This can be a really good way of rewarding your most loyal customers, thanking people for referrals and for providing that extra bit of goodwill. And as it’s tax deductible, it reduces your profit, which means you pay less corporation tax overall.
So there you go, 3 easy ways to save money on tax!
But how can you make sure you’ve got the money there to pay your tax bill? How can you prevent the usual stress and worry, when it comes to tax return time?
Well, this is a really, really simple one… just put the money away for tax as you go.
If you were an employee, your employer takes off your tax and National Insurance every month when you get paid and pays it directly to HMRC on your behalf.
There’s no reason why you can’t do the same thing.
Every month, when you look at the money that’s come into your business, take 20 or 25% and put it into a separate account so you’ve got it there when your tax bill is due. It really is that simple.
If your business cashflow isn’t there to do this, then it’s a question of looking at your revenue streams and how you can maximise your profit, so that you ARE in a position to put that money aside month by month.
And if you want to know how much money you’re going to need, then fill your tax return out early! The 31st of January is a deadline, not a target. You can fill it out anytime from April onwards. The sooner you fill it out, the sooner you’re going to know how much tax you need to pay.
Don’t forget that I can help with everything we’ve talked about today.
If you want to know more about saving tax in your business, you might like the Tax Eliminator Masterclass.
As a business owner, you’ll discover all the ways you can legally and ethically reduce your tax bill, and how to extract surplus profits from your business. Get it here now.
Or if you want to talk about getting some 1:1 support with all your tax stuff, just click here to get in touch and I can chat you through the various options!
Until next time,
Claire