10 Ways to Minimise Tax when in Business - dummies

By Colin Barrow

Part of Starting a Business Cheat Sheet (UK Edition)

Making a profit is essential if you’re to succeed in business. The more of that profit you can hold onto the more you have to invest in new equipment, processes, products and services and so stay ahead of the competition.

Take these steps to keep your tax bill to a minimum:

  • Make sure that you include all allowable business expenses. When you’ve recently set up in business, you may not be fully aware of all the expenses that you can claim.

  • If you’ve made losses in any tax period, under certain circumstances you may carry these forward to offset future taxable profits or back against past profits.

  • You can defer paying capital gains tax if you plan to buy another asset with the proceeds. This is known as ‘rollover relief’ and normally you can use it for up to three years after the taxable event.

  • Pension contributions reduce your taxable profits. You may even be able to set up a pension scheme that allows you some say over how those funds are used.

  • If you intend to buy capital assets for your business, bring forward your spending plans to maximise your use of the writingdown allowance, which is the portion of the cost of the asset you can set against tax in any year.

  • Identify non-cash benefits that you and others working for you can take instead of taxable salary.

  • Examine the pros and cons of taking your money out of a limited company by way of dividends or salary. These routes are taxed differently and may provide scope for tax reduction.

  • If your spouse has no other income from employment, he or she could earn a sum equivalent to the annual tax-free allowance (currently about £5,000) by working for your business.

  • If you incurred any pre-trading expenses at any stage over the seven years before you started up in business, you can probably treat them as if you incurred them after trading started.

  • You may be able to treat the full purchase price of business assets you bought through hire purchase in your capital allowances calculation.