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10 essential tax tips for small business owners

Tax isn’t the most exciting part of running your own business, but it is an issue that you will have to tackle at some point.

To help you to quickly get to grips with the subject, here are some handy tax tips based on our findings of working with small businesses over the past 15 years, and from our own personal experiences of running our own business at ByteStart.

1. Meet your deadlines on-time to avoid penalties

If you’re working via your own limited company, make sure you submit your annual accounts, tax returns and Companies House paperwork (confirmation statement) accurately, and on time, to avoid penalties.

If you’re working as a sole trader or partnership, you must submit your self-assessment return by 31st January each year, plus pay any tax liabilities by the same date. If you’re a company director, or have untaxed income, you will also need to complete a personal tax return.

Don’t forget, even if you have the best accountant in the country, it is business owners who are ultimately responsible for the timeliness and accuracy of their accounts.

2. Keep accurate records

Maintain accurate records at all times, and keep all your invoices and receipts in a safe place. You should keep all business records for six years according to HMRC. These days, with the explosion of cloud computing, all of your records should be automatically secured within your online accounting software account.

3. Claim for any allowances you’re entitled to

Make sure you claim for all the allowances you and your business are entitled to – from capital allowances (such as the Annual Investment Allowance) to claiming help with your business rates.

4. Online (cloud) accounting is a game-changer for business owners

Online accounting software packages such as FreeAgent and SageOne can save you hours in time, and make your accountant’s life easier at year-end. You’ll also be able to access your records at any time, from anywhere.

You can link your bank accounts, and even submit your VAT and self-assessment returns from within the software front-end. A brilliant investment for any business owner.

5. Claim for the costs of working from home

5. If you are running a business from home, you can claim back a fixed nominal sum (£6/week or £26/month in 2020/1) without having to submit any receipts or other paperwork. Alternatively, you can claim expenses for a proportion of your home-related costs.

6. Beware of illegal dividends

If you run a limited company, you must ensure that you only declare dividends from retained profits. This is the money left in your company after it has met all of its liabilities, including taxes. ‘Ultra vires’ – illegal – dividends can be costly to sort-out at a later date, and your accountant may charge you for the extra work involved. You could also face penalties from HMRC.

7. Could you benefit from the Flat Rate VAT Scheme?

If you are VAT registered, ask your accountant if you would be better off using the Flat Rate VAT Scheme, which also provides a further percentage reduction during the first year following registration. Alongside the tax benefit, it is also a much simpler way of accounting for VAT.

8. Reclaim all of your business-related expenses

Don’t forget to claim for the costs incurred as a result of setting up your business, such as company formation costs (if applicable), or any equipment you may have purchased. Just ensure that the expense was incurred solely for business reasons and that nothing has a dual purpose, i.e. a mixed personal and business use.

9. Keep your tax safe

Whatever you do, don’t spend money that isn’t yours. With cloud accounting software almost ubiquitous these days, you have no excuse if you accidentally extract more money than you should from your business.

We suggest opening a separate deposit bank account where you can transfer any future tax liabilities at regular intervals. Sadly, you are very unlikely to earn any interest on your savings these days!

10. A good accountant is worth their weight in gold

A good accountant may become your most important advisor, and could save you money. An accountant will also be able to advise which business structure will suit you the best – sole trader, partnership, or limited company.

They will be able to advise you on the most tax-efficient way to draw down money from your business, and which expenses and allowances you can legitimately claim.

Ask other business owners if they have any recommendations, as this is by far the best way to find a trusted advisor.

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