What Everyone Wants
We will often get asked by prospective clients that they need us to minimise their tax liability and as an accountancy practice our aim is indeed this. Business owners will often want to know the best tax saving tip and will read articles from tax experts to find out what they need to be doing. There are indeed a number of different policies you can be following to be tax efficient but there is one important thing all businesses should be doing to help not paying excessive taxes.
Know Your Numbers
Yes, your business can be initially set up in the way to be tax efficient but this will fall down if you do not follow this simple rule. You should always know your numbers, where your business is as regards profitability or its Balance Sheet position should always be visible to you. Knowing your numbers at any time will mean you are less likely to be in a bad position tax wise.
How Can It Go Wrong ?
An example of this is a director of a limited company. They could be taking ” dividends ” out of the business but because the profit of the business is insufficient, they are creating an Overdrawn Directors Loan account. This will lead to additional corporation tax charges down the line. If the company knew its numbers and was on top of all their financial transactions, they would have known that the DLA was about to go overdrawn and could have made adjustments to the cash taken out of the business by the director.
Another example would be employees going above the 10,000 business miles in an HMRC tax year that have been claimed at 45 pence a mile for use of their own car on company business . If they have claimed 12,000 miles at 45 pence, any mileage over 10,000 should have being at 25 pence and this difference will become a P11d benefit to the employee and the employer will have to pay Class 1a National Insurance on this. If this information had being getting properly recorded and checked to ensure they were not getting near the 10,000 miles, the additional tax charge would have not happened.
How Do You Solve It ?
All businesses should know their numbers at all times so that they can plan for their growth but just as importantly, so they are always on top of their tax position as illustrated by those couple of examples above. Having a rigorous bookkeeping system and keeping on top of this will enable you do this. There are a lot of great software packages out there which are easy to use. We give all our clients within their fixed fee accountancy packages Quickbooks Online which is really good for this.
When you first start out in your business, you may well want to do this bookkeeping yourself to keep costs down but I do recommend you outsource this as soon as you can. This will not only enable you can focus on what you are best at but also ensure you have an expert in the field doing the work for you and so you will know that it is of a high standard. We provide a bookkeeping service to clients and the cost of this could save you easily some nasty, surprise tax bills.
Never Forget The Basics
As I have illustrated here, you can have your business set up initially in a very tax efficient way but if you do not keep on top of your bookkeeping and you lose sight of your numbers at any time, you can still potentially get unexpected tax charges.