Tips to Minimise Tax Liability for Small Businesses
A Small Business Tax Action Report from 2012 estimated that UK companies would pay around £7 billion more in taxes than they really needed to. Divided up, this can be a huge sum for the companies who are struggling to find the capital they need to maintain a healthy cash flow, pay all the bills and grow the business. The £7 billion wasted on unnecessary tax could be spent in so many different ways, from employing new staff to investing in new technology to simply ensuring that the business is meeting all its financial requirements and turning over a profit.
“SMEs in the UK are paying far greater amounts of tax than they should,” says Laurence Collins, Managing Director of Magic Accounts, provider of accountancy packages for small businesses. “Their overpayments are inhibiting their ability to grow and to maintain healthy financial practices throughout the businesses. It is vital for a business to find ways to minimise their own tax liability to free up the extra capital they need.”
One of the most effective ways to minimise tax liability is to set the business up with a tax-efficient structure. The way businesses are set up have major tax implications for their future, and a corporate structure might well be the most tax efficiency system for certain businesses. However, this all depends on future plans for the company, and the risk environment that an organisation operates in. Limited company structures work best for those who are self-employed; it minimises the impact of the 50% income tax rate. Speaking to a professional accountant before setting up the business can help to determine the most tax-efficient way to build a business.
A business owner can also minimise tax liability by withdrawing their own payment as a dividend rather than as salary. Salary payments and dividends operate with different levels of taxation; salaries are allowable deductions when considering a company’s taxable profit, and this can end up reducing the Corporation Tax that a business pays out. However, dividends are not allowable at all for Corporation Tax, as they are considered to be a distribution of profits after taxation. No employee National Insurance is payable, and payment by dividend can be beneficial to the cash flow of a company.
The Enterprise Management Incentive scheme is also an option that certain businesses can consider, if they are eligible and their performance conditions meet the correct criteria. This share option allows for special tax treatment, with up to £120,000 to be granted to certain employees exempt from income tax and National Insurance contributions. This can free up some cash for the business to expand and grow, and can create a more healthy cash flow throughout the organisation.
For more information about tax liability from Magic Accounts, please visit http://www.magicaccounts.co.uk/
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Striving to give all businesses peace of mind, Magic Accounts offers a complete accounting solution in an all-inclusive, fixed-fee package. Their professional, approachable team of accountants provide in-depth accounts and management reports to take any business in the right direction.