30 Tax Savings Tips for the Small Business Owner

Know your VAT

VAT is a common area where business owners are losing out. Are you paying the right amount? Have you looked at the Flat Rate Scheme?

Many businesses are unaware of the Flat Rate VAT scheme, but for the right business it can be an unexpected source of profit.

In a nutshell, under the flat rate scheme you pay a single, flat rate of VAT on your turnover. HMRC have a list of the flat VAT rates available for different industries. For example, for Hairdressing or other beauty treatment services it is 12%, while it is 14.5% for computer and IT consultants.

You choose the VAT rate most applicable for your industry, apply the percentage to your gross turnover in the quarter and pay this to HMRC

You can’t usually reclaim the VAT on your purchases but you can keep the difference between the VAT you charge your customers (usually 20%). HMRC even allow you a 1% discount in your first 12 months of registration.


Keep it in the family

The personal allowance is currently £12,500 of tax free income. By looking at your family situation it may be possible to utilise the personal allowances of family members who are able to carry out duties within your business.

Treat your staff

There are several tax free benefits that can be paid to staff to save both you and them tax.

It always surprises  how few businesses take advantages of these benefits, either for themselves of their staff. The cycle to work scheme has been in operation for several years and can save up to 25% of the cost of a new bike, as well as making tax savings.

Large organisations such as the NHS are keen promoters of this scheme, but the uptake from smaller businesses hasn’t been as good.


Pay yourself efficiently

The amount you pay yourself from your business obviously has an impact on the amount of tax you pay. How you pay yourself can also have a significant impact also.

Salary, dividends, benefits in kind, all need consideration on an on-going basis.A common benefit in kind is use of a company car. Each case needs to be considered on a case by case basis, but generally business owners can save tax by having a company car.

Care needs to be taken to ensure that HMRC are notified promptly when employees receive a Company car. This avoids a nasty tax bill at the end of the tax year.

Dividend payments need to be monitored on a monthly basis, and this can only really be achieved by keeping up to date records that are able to provide monthly management information.

Dividends can be a great method of paying key people within the business, but care needs to be taken so not to fall foul of Company Law, and ultimately HMRC.


Self-employed car costs 

You can generally claim the running costs of a car you use for business (though not the cost of buying one). If you use the same car in your private life, you can claim a proportion of the total costs.  To do this, you’ll need to either add up all of your motor expenses for the year and work out the percentage of business miles you did, or you can claim a fixed rate mileage allowance for business travel. 


Simple ways to save tax on your earnings.


Check your tax code 

Your tax code indicates how much tax HMRC will collect from your salary. You can find it on your payslip. Check your tax code each year, or after changing jobs, to make sure it’s correct for your situation. For the tax year 20/21 the basic tax code is 1250L, superseded by an S if you live or work in Scotland.

 If you’re on the wrong code, you may be entitled to pay less tax in coming months or receive a refund for previous years. 


Pay into a pension scheme 

Contributions to your employer’s pension scheme (including any additional voluntary contributions you make) can be made from your gross pay, before any tax is charged. The government will top up your pension with tax relief, giving you a free bonus for saving for retirement. 


Benefit from marriage allowance 

Marriage allowance is a tax perk that benefits couples where one partner earns less than the personal allowance. If you’re married or in a civil partnership, you can transfer any unused personal allowance from the lower-earning partner to the higher earner. Up to £1,250 can be transferred in 2020-21, potentially saving you up to £250.  To qualify, the higher earner must be a 20% taxpayer.


Meet the tax return deadline 

If you’re one of the 12m people who need to submit a self-assessment tax return, make sure you don’t miss the deadline – it’s a costly and easily-avoided mistake. For online submissions, you have until 31 January 2021 to send in your 2019-20 return. Miss the deadline and there’s an automatic £100 fine – even if you don’t owe any tax. 


Reclaim overpaid taxes 

If you are a non-taxpayer, or your income unexpected falls during a year, you may find that you’ve been taxed more than you should have done, as HMRC assumes your personal allowance is equally used each month.  To reclaim, fill out form R40 from HMRC, or call them.


Student Loans

Are you still paying off your student loan – it is a good idea to check this in December because they won’t tell you if it’s finished or getting close to finishing – statement are only issued annually. 


Employee tax benefits 


Get a season ticket loan 

Some employers will offer you a tax-free loan to buy your season ticket, potentially saving you hundreds on travel costs. Ask your employer if they’re part of the scheme. 

Claim tax-free childcare 

Under the tax-free childcare scheme, you can claim back 25% of your childcare costs, up to £500 every three months. You’ll have to meet set criteria, including having a child under 11 and earning less than £100,000. 


 Switch to a low-emission car

 If you are changing your company car, consider a low-emissions model . These are now taxed at a lower percentage of their list price than cars with a high CO2 rating. 


Cut tax on your savings 


Maximise your personal savings allowance 

In 2020-21, you can earn £1,000 of interest on savings tax-free if you’re a basic-rate taxpayer. If you’re a higher-rate taxpayer, your tax-free allowance is £500.  You’ll only pay tax on savings income that exceeds this threshold. This will no longer be deducted automatically by the savings provider. If tax is due, you’ll need to pay it via self-assessment or have it deducted via PAYE. Keep in mind that you won’t have a savings allowance as an additional-rate (45%) taxpayer. 


Make the most of your Isa allowance

Everyone can take advantage of their annual tax-free Isa allowance. For the 2020-21 tax year, you can deposit up to £20,000 into Isa accounts. This is unchanged from 2019-20. This can all be put in a cash Isa, a stocks and shares Isa, or split between both cash and stocks and shares.

Use the starter rate for savings 

If your income from a job or pension is below the £12,500 in 2020-21, but you earn income through interest on savings, you may also qualify for the starter savings allowance.  Any interest you earn up to £5,000 is tax-free. This will be in addition to your personal savings allowance, meaning you could earn as much as £18,500 before paying tax. 

Capital gains tax (CGT) allowance 

Capital gains is the profit you make from selling certain investments, including second homes, art, antiques and shares.  Capital gains of up to £12,300 are tax-free in 2020-21. Married couples and civil partners who own assets jointly can claim a double allowance of £24,600.  Remember, if you don’t use the allowance within the tax year, it’s lost forever.


Make the most of Venture Capital Trusts 

Similarly, Venture Capital Trusts (VCTs) also offer 30% tax relief, but only on investments up to £200,000. VCTs are a specialist type of investment trust, meaning the investments are managed by a fund manager, rather than chosen yourself. To qualify for the relief, you’ll need to buy the shares at launch, and hold them for at least five years.  


Buy shares through your company 

If your employer offers free shares or the right to buy shares at preferential rates through a government-approved scheme, such as the ShareIncentive Plan, Company Share Option Plan or Enterprise Management Initiative Scheme, the value of shares is exempt from income tax and National Insurance.  However, it’s not entirely tax-free. You’ll likely need to pay capital gains tax when you eventually sell your shares.


Save on property income tax 


Use the Rent-a-Room relief 

The Rent-a-Room scheme allows you receive up to £7,500 in rent each year from a lodger, tax-free. This only applies if you rent out furnished accommodation in your own home, and you’ll need to live in the property as well. If two people who share a property take advantage of the scheme, they can only claim £3,750 each. This is reduced proportionally according to the number of people owning the home.  


Landlord’s expenses 

If you rent out property, you can deduct a range of costs from your taxable income. These include the wages of gardeners and cleaners, letting-agency fees, ground rents and service charges, accountant’s fees and landlord insurance. 


Landlord’s replacement of domestic items 

Landlords can claim tax relief on money spent to replace ‘domestic items’ in their furnished rental properties. The types of items you can claim relief on include beds, carpets, crockery or cutlery, sofas, curtains, fridges and other white goods. But this only applies to items being replaced – not those bought for a property for the first time. You can also only claim the amount for a like-for-like replacement. 


Tax relief on your buy-to-let mortgage 

When you take out a mortgage to buy a rental property, you can claim a 20% tax credit on mortgage interest.  


Reduce CGT on a rental property 

Landlords are normally liable for capital gains tax when they make a profit from selling a rental property. However, if the property has been your main home at some time in the past, you can claim tax relief for the last nine months of ownership. The rules are complicated, so get professional advice.


Tax savings for older people 


National Insurance  

You won’t need to keep making National Insurance contributions if you carry on working beyond state retirement age (currently 65). So make sure your employer is aware of this and adjusts your pay. 


Cut a future inheritance tax bill with gifts 

Gifts aren’t counted towards your inheritance-tax bill if you live for a further seven years after making them. Known as potentially exempt transfers (PETs), a gift from your estate can reduce your bill significantly. What’s more, you can give away up to £3,000 each year without ever having to worry about the potential tax, as well as multiple smaller gifts of £250, providing they don’t go to the same person.  


Specified Adult Childcare Credits

Many older family members look after their grandchildren to allow the child’s mother to go back to work, but it seems few know they could also be eligible to receive national insurance (NI) credits to compensate them for their time. For every year you don’t claim NI credits, you could lose £231/year from your state pension.

The Government scheme – technically known as ‘specified adult childcare credits’ – was introduced five years ago, and is designed to protect the pensions of grandparents who retire early to help care for grandchildren so their parents can go back to work.


Charity tax savings 


Make a charitable donation Making donations to charity is tax-free. Either yourself or the charity can claim the tax back through Gift Aid. If you pay higher or additional-rate tax, you can also claim back the difference to the basic-rate on any Gift Aid donations.  To do this, you need to claim on your self-assessment tax return or ask HMRC to adjust your tax code. As a basic rate taxpayer, a £1.25 donation will cost you a pound. For higher rate taxpayers, you’ll pay just 75p. Keep records showing the date and amount you have donated.  


Get a good Accountant


At SJC+0 we aim to create transparent relationships with my clients that will help them build and plan today to ensure they are still here tomorrow.

There will be no unanticipated bills received nor will there be once a year meetings. I stay in touch with all of my clients throughout the year, delivering a tailored service, to ensure that tax is minimised and growth maximised.


Merry Christmas and make sure the tax man doesn’t take all your money.


Susan Crichton

SJC+0 Accounts

07957 581757



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