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How to reduce your tax bill

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.

File and pay on time

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.

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Expert view

How to minimise your tax

“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.”

Claiming expenses

How it works

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.

What to do

  • Keep all expense receipts and invoices you receive.
  • Try to pay for anything that could be a claimable business expense through your business account, so you've got a paper (and electronic) trail.
  • Keep records of all your expenses — you have to keep these records for seven years.
  • You'll claim your expenses as part of your tax return by entering totals into the relevant boxes. You don't need to provide the receipts with your return, but you need them on hand if Inland Revenue wants to see them.
Make sure you only claim business expenses — not personal ones.

Make sure you only claim business expenses — not personal ones.

And keep good records of what you spent the money on for your business.

How it works

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.

What to do

  • Keep all receipts and invoices related to any depreciable assets.
  • Keep an accurate record of your fixed assets, the depreciation claimed and the adjusted tax value of each asset — keep these records for seven years.
  • You'll claim for depreciation as part of your end-of-year tax return.

Deductions for donations

How it works

If your business makes a charitable donation, you can deduct the amount of the donation from your income.

What to do

  • Keep any tax receipts and invoices for donations you make over $5.
  • Claim back the tax at the end of the tax year — this is a separate claim to your income tax return.

 

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