An Introduction to Tax Planning for Small Businesses
There is an age-old saying that nothing in this world is certain, except death and taxes. While this is an amusing and over-used phrase, the reality of it is still prevalent today. The business tax component, comprising of various types of tax, not only contributes to the economy of a country, but also assures that a type of governance on businesses is in place.
In this post we’ll look at six types of tax your business could encounter and how tax planning could help.
Introducing the tax types
To start with, here are the some of the taxes a small business could encounter in the UK:
- Value Added Tax (VAT)
- Capital Gains Tax (CGT)
- Income tax
- Employee National Insurance Contribution (NIC)
- Business rates
Your tax requirements are determined by what type of trade you are in, the size of your business and, in large part, the legally registered structure of the enterprise. A brief overview of these provide a bit more clarity to the new entrepreneur…
A closer look
VAT is a taxable surcharge a business will collect on behalf of HM Revenue & Customs. If a company is registered for VAT they can reclaim these charges.
CGT is a calculated tax against the increase in value of an asset after it has been sold out of a business.
Corporation tax is an example of where the legal structure of your business entity has an influence on your taxation. It is a profit-based tax solely applicable to limited companies.
On the other hand, business rates are fees payable based on the business premises. There are small business rates reliefs available, which would make more sense to an accountant or a tax advisor.
While income tax is most obvious form of tax, affected against personal remuneration as PAYE, the NIC insurance contributions go towards building an entitlement for state benefits, such as maternity leave and pension. Income tax has many variables to consider, which involves personal allowance relief and brackets which escalate.
As with most aspects of business tax, a seasoned accountant or advisor will be able to assist with tax planning and the implementation of methods to better track and calculate these taxes daily as the business runs.
Benefits of tax planning
Normally a small to medium enterprise (SME) runs on a smaller workforce with specialised skill sets. The key to the success of the modern start-up is the ability to focus on what drives sales or generates an income.
While a workshop owner knows the car industry, or a mechanic knows the inner workings of an engine, a financial expert understands the industry-specific tax implications for most small business types.
Should I outsource tax planning?
Outsourcing this part of your business allows you to concentrate on running the business more efficiently and sourcing more customers. In fact, outsourcing tax return preparation and planning has become common practice over the years. Best of all, it has also become very affordable.
Whether it is to exploit the legal loopholes provided or lower the amount of taxable income, it is essential to have someone on your side that can better advise you on the best ways to guide your business through the maze of small business tax. A tax professional understands the differences in tax based on sales, income, employees and property.
It’s easy to imagine there is a clear distinction between tax avoidance and reducing your tax liability. Yet, for some reason, this remains a stumbling block for most small businesses. It’s best not to allow this to become a grey area with blurred lines.
In short, tax evasion is the act of deliberately and dishonestly withholding taxes which are legally due. This could include misrepresenting receipts or concealing funds. This is a punishable offence and the penalties can be very severe.
The last thing a small business needs is to be subjected to tax fraud investigations, which could also impact on how much consumers trust your business.
Plan to succeed
Since tax is unavoidable, it makes sense not to view it in a negative light. Embrace it and prepare for it as best you possibly can. At UWM Accountants in Leeds, we provide specialist tax planning services for businesses across the UK.
With our help, you can ensure all expenses, reliefs and allowances are maximised, all returns are completed on time and all your assets are organised optimally. It’s tax-efficiency without all the hassle. Get in touch with our team today on 0113 231 0202.