If you run a small business, finding good tax planning strategies can help set you up for success.

Minimising your liabilities can give your business the financial flexibility you need to meet your ambitions. After all, the more you save, the more you can invest back into your business’s future.

Here are our top tips for making your small business more tax-efficient.

Tax planning strategies for small businesses

Choosing your business structure

The best approach to tax planning will depend partly on how you structure your small business.

As a sole trader, you’ll need to focus on your income tax strategy. Taking steps such as maximising your business expenses and claiming capital allowances can help reduce your income tax bill.

You’ll be able to take advantage of different corporate tax planning opportunities if you set up a limited company. Depending on your circumstances, it may be more tax-efficient to do so.

For example, you can take a wage using a combination of salary and dividends as a limited company director. Since these payment methods are taxed at different rates, this can make paying yourself more cost-effective.

Claiming business expenses

Making the most of your business expenses is essential to any good tax planning strategy.

If you’re self-employed, you can deduct allowable business expenses against your taxable income in your self-assessment tax return. Meanwhile, limited companies can claim allowable expenses on their corporation tax returns.

Qualified bookkeepers can help you make the most of your business expenses. With all your business transactions accounted for, it will be easier to maximise your claims.

Accounting for VAT

If your business is VAT-registered, you may be able to use VAT accounting to your advantage.

You can keep hold of your VAT income for a short time before you need to file and pay your quarterly returns. With some careful planning, this can give your cashflow a welcome boost.

This area of tax can be complicated, but VAT accountants can ensure you meet your obligations while helping you access extra cash when you need it most.

A tax expert can also submit your VAT returns on your behalf and claim back VAT on items bought for business purposes.

Making use of tax breaks

Capital allowances

Claiming capital allowances can help reduce your liabilities. For example, businesses can use the annual investment allowance to deduct the full value of qualifying plant and machinery from their profits before tax.

Furthermore, as announced in the 2023 Spring Budget, UK companies can now claim back 100% of qualifying costs through a new full expensing scheme from 1 April 2023 until 31 March 2026.

Pensions contributions

So long as you don’t exceed the annual pensions allowance, your pension contributions are completely tax-free. As a result, adding to your pension fund can improve your business’s tax efficiency while helping you save for the future.

If you run payroll as an employer, you can also claim employee pensions contributions as an allowable business expense.

Research & Development

Limited companies can claim research & development (R&D) tax credits on qualifying projects.

The SME R&D scheme allows innovative small businesses to claim the costs of projects against their taxable profits. You can even claim a payable tax credit if your company makes a loss.

So long as you meet the eligibility criteria, this can be a great way to reduce your corporation tax bill.
Understanding your taxes

If you want to draw up a solid tax planning strategy, it’s essential to understand your tax liabilities and obligations to HMRC.

As corporate tax accountants, we can draw up a strategy to maximise your limited company’s tax savings. We also offer personal tax planning services to help you manage your income tax liabilities.

You can also rely on us to keep you in the loop with any tax legislation changes that could affect your small business.

Want to set yourself up for success? Contact us to discuss small business tax in the UK.