Many of the business expenses you face can be deducted from your income when calculating your tax bill. Here are steps you might be able to take to reduce the amount of tax you need to pay.
This avoids any risk of having to paying interest or penalties.
If you’re worried you may miss a payment date, call Inland Revenue on 0800 377 772 to discuss what support might be available.
“In my experience small businesses want to pay the amount of tax that they have to pay but no more, no less,” says tax expert John Shewan, formerly of PwC.
There are legitimate ways to minimise the tax you pay, he says. How best to do this will depend in part on your business structure — sole trader, partnership or company.
“Make sure your business structure lines up with you own personal family circumstances and with your commercial objectives. What I mean by that is you don’t want to rush off and form a company unless you really have to. It may well be best just to operate as sole trader.”
Make sure you claim all the business expenses you’re entitled to, and also consider how you structure your debts — interest from business loans is tax deductible.
“One of the most common mistakes I see small businesses making is to have their own private debt against their property [eg a home mortgage], but they have equity, their own money, tied up in their business.
“They’re better to try and structure that in a way that ensures they match their borrowings against their business assets and can deduct the interest. That can save them up to a third of the interest cost.”
At tax time, your total profit (the amount you need to pay tax on) is your income minus the expenses you can claim — so the more you can claim, the less tax you have to pay.
And keep good records of what you spent the money on for your business.
Depreciation is a way of claiming back some money on assets you buy for your business, like computers, vehicles or machinery. You claim for the amount it depreciates each year — that is, the value lost through wear and tear or becoming out of date.
If your business makes a charitable donation, you can deduct the amount of the donation from your income.
How to claim tax credits for donations (external link) — Inland Revenue
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