Running a small company brings unique difficulties, and traversing the complex world of taxes is one of them. However, we have the solution.
By establishing effective tax planning strategies, you can pave the way for financial prosperity while offering your company the flexibility it needs to thrive.
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You can remain on top of your tax operations by comprehending your financial data and playing around with basic calculations.
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Why is tax planning important?
How you set up your personal and professional matters can impact the amount of tax you pay. Businesses should create a personalised tax-management strategy that fits their needs, minimising tax liabilities while staying compliant with HMRC laws.
These strategies indicate your careful efforts and safeguard your financial resources now and in the future.
The complexity of taxation means looking for the help of qualified experts to guide you through this complicated landscape and secure the best outcomes for your financial situation.
Tax planning strategies for startups in 2024
- Check what reliefs you are eligible for
Consult your tax advisors to see whether you qualify for any of the following:
| Tax benefits | Available reliefs |
| ⦁ Capital allowances | ⦁ Up to 100% of the permitted expense may be deducted from taxes. |
| ⦁ Business Property Relief | ⦁ Business property relief (related to inheritance tax) |
| ⦁ Business Asset Disposal Reliev (formerly Entrepreneurs’ Relief) | ⦁ You only pay a 10% tax on gains on eligible business assets. |
| ⦁ R&D Claims | ⦁ R&D expenses (up to 125% of eligible costs) |
| ⦁ Patent Box | ⦁ Patent box (interest income from patents might only be subject to a 10% tax) |
- Take benefit of the VAT flat rate scheme
Eligible for the initiative if your annual turnover is less than £150,000, this tax-saving tip can streamline your VAT accounting and assist you in saving money on your VAT payments.
Instead of determining the VAT on your purchases and sales, you pay a flat rate of your revenue to HM Revenue and Customs.
You keep the difference between what you charge your clients and what you pay HM Revenue and Customs; the exact percentage will vary depending on your industry.
- Use the Annual Investment Allowance(AIA)
Deduct the full cost of qualifying machinery and equipment from your earnings before tax, up to £1 million yearly, with this tax-saving tip. Use the AIA to take advantage of this valuable tax relief.
The majority of plant and machinery, including office furniture and computers, are covered by the AIA.
- Claim all allowable expenses
Your claimable expenditures include part of your company’s operational expenses, such as purchasing office premises, a home office, and a vehicle.
Particularly, if you primarily work from home, there is a flat rate allowance that you can use for your electricity, heat, and lighting.
Speak with your accountant about any other claims you may be eligible for, such as percentages towards utility bills or, if you work as a self-employed electrician, the cost of safety gear.
- Carry forward losses
There are two methods of accounting that you can stick to – cash basis and accrual basis. The benefit of the cash basis of accounting for a sole proprietor is that their tax burden can be reduced by carrying over losses from one year and offsetting them against profits in the following one.
Additionally, there is a particular loss relief programme that you can apply for if you are closing down your firm and you have had losses in the past year.
- Pay more into your pension
As an entrepreneur, your personal finances are closely associated with your business tax plans. For example, if you are a base rate taxpayer, the government matches 20% of your contributions to a pension. Furthermore, this increases even further if you pay between 40 and 45 per cent in taxes.
Furthermore, you can make tax-free investments of up to £20,000 in cash, stocks and shares, or innovative finance ISAs.
- Plan for estimated taxes
As a startup business owner, making quarterly estimated tax payments to government entities may be necessary based on your anticipated income and tax liability.
Establish a proactive approach to tax planning so that you can precisely project your quarterly tax requirements and allocate funds to meet them, preventing underpayment penalties and interest.
- Maximise deductions
Determine eligible company expenditures and deductions that can decrease your taxable earnings, such as office rent, utilities, supplies, equipment purchases, advertising costs, and professional fees.
To reduce your tax liability, note any deductible costs and ensure you include them on your tax return.
- Consult a professional
Working with an experienced accountant can assist you in navigating the complicated world of tax law and determining the best tax-saving methods for your business.
This tax-saving tip can offer helpful guidance on financial planning and management, assist you in preparing your tax returns, and indicate you in case of an audit.
A good accountant can additionally assist you in avoiding costly mistakes and ensure that you comply with all tax laws and regulations. Look for an accountant with experience dealing with small businesses who can offer customised solutions for your particular requirements.
- Raise finance
Startups can raise capital by investing in larger enterprises through the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS). These programmes encourage bigger corporations to buy shares in smaller ones by providing tax breaks to investors.
Investors who fit the requirements can receive capital gains tax and income tax relief on their assets. Find out from your accountant the most effective way to raise money.
Hire Tax Accountant
Work with a UK-based accountant for tax, accounting, payroll, & EIS/ SEIS needs.
Final thoughts
Regardless of your industry, several strategies are available to reduce your startup’s tax burden. Since every company is different, it is advisable to collaborate with a tax accountant who can provide the best tax planning guidance for your specific requirements. And never forget: Don’t wait until the last minute to have tax conversations!
By speaking with your accountant regularly, you may prevent the anxiety that comes before deadlines and create more intelligent accounting practices all year long.
