Running a small business is a momentous challenge. The determination, hard work, attention to detail, diligence and creativity needed mean that not everyone can succeed in making theirs successful. A key obstacle for many small business owners comes in failing to successfully manage tax, which often means paying more than is necessary. Here are a few of my tax tips for SME.
Say no to Corporation Tax at the highest rate of 29.75%
Keep your profit below the marginal band so that your company pays no more than the 21% rate. In fact, your full-year budgeted profits should be calculated as soon as possible to ensure this.
What you do not want to be is a standalone company with estimated taxable profits in excess of £300,000 but less than £1.5m. This is what is referred to as the corporation tax ‘marginal rate’, and it is higher than the 28% tax rate applied to large companies that rake in profits in excess of £1.5m. If you’re paying the 29.75% rate, you need to reevaluate your approach to tax-planning to try to reduce your corporation tax bill.
The 50% additional rate for entrepreneurs
For successful entrepreneurs earning more than £150,000, income tax is levied at 50% on bonuses or salary in contrast to 36.1% on dividends, as a 44% increase in dividend tax rate matches a 25% increase in tax on salary income. This makes getting the right balance of remuneration even more crucial for successful entrepreneurs.
Instead of taking a dividend from your company beyond £150,000 total income, you could take a loan from the taxpaying company at a 25% tax rate on the loan. This is more or less what the shareholder would have paid on a dividend.
Avoid being barred from lucrative tax incentives
Available tax incentives such as capital allowances on fixed asset expenditure, R&D tax credits, loss carry back claims etc, should be reviewed by yourself or a specialist tax firm. This is as most tax breaks of such types have a two-year time limit, after which you won’t be able to claim them back. Avoid being barred by reviewing these tax incentives sooner.
Claim loss carry-backs quickly
Those with a forecast tax loss can carry the loss back in order to get a tax refund from HMRC. This will be of the equivalent amount lost during the previous accounting period.
This is a guest post provided by RIFT Tax Refund