Eight ways you can save on tax

Claim your expenses

Expenses that are “wholly and exclusively” for the purposes of running your business can be deducted from taxable profits to reduce your tax payments. This applies for both sole traders and limited companies.

Examples of allowable expenses include:

• office costs such as stationery and phone bills
• bills for business premises like business rates and energy
• advertising and marketing costs such as website fees
• business travel costs such as fuel, parking charges and bus, plane or train tickets
• insurance and bank charges
• If you work from home, you may be able claim a portion of your household bills as a business expense Please note the processes for work from home expenses differ for sole traders, directors and employees.

Ensuring you claim all allowable expenses will help to lower your tax.

Pay into your pension

Both sole traders and limited company directors can get tax relief by paying into a pension.

Making personal pension contributions gives you basic rate tax relief. Higher rate taxpayers can claim additional relief via their self-assessment tax return.

A limit applies to the amount of tax efficient savings which may be made which is known as the annual allowance and currently this sits at £60,000.

Limited company directors can sometimes obtain tax benefits by making contributions from the company rather than as personal pension contributions. By doing this, the company contributions will generally be an allowable company expense and reduce corporation tax payments.

In addition, contributions can be made into a pension plan before any tax is deducted from income which means the limited company director will pay less income tax on the forgone dividend or salary.

You may also need to take pensions and investment advice from an independent financial adviser. We work with Financial Planning by TaxAssist who can advise you on all aspects of your financial affairs, including independent advice on pensions and retirement planning. 

Make charitable donations

Some taxpayers can claim tax relief on charity donations they make using Gift Aid. The relief works in a similar way to making personal pension contributions.

If a donation is made this way, the charity can reclaim the 20% basic rate of tax, and a higher or additional rate taxpayer who has made the donation can obtain additional tax relief on their tax return.

You must ensure you have paid sufficient tax for the charity to make the gift aid claim to avoid an unintended tax bill.

Claim the Employment Allowance

If you are an employer and you fit the eligibility criteria, you can claim Employment Allowance to reduce your annual National Insurance liability by up to £5,000.

You can claim the allowance if you are a business or charity, and your employer’s Class 1 National Insurance liabilities were less than £100,000 in the previous tax year.

There are some employers who can’t apply, including if you’re a company with only one employee paid above the Class 1 National Insurance secondary threshold and the employee is also a director of the company.

You can read the HMRC guide for the Employment Allowance here.

Join the VAT Flat Rate Scheme

While not appropriate for all businesses, you may be able to reduce your VAT bill by joining the Government’s VAT Flat Rate Scheme. To join, you need to be a VAT-registered business and expect your VAT taxable turnover to be £150,000 or less (excluding VAT) over the next 12 months.

Being part of the scheme means you pay a fixed rate of VAT to HMRC which varies depending on your type of business. If it’s your first year as a VAT-registered business, you also get a 1% discount.

To help you decide if the scheme is right for you and your business, read our guide.

Claim research and development tax credits

Research and development (R&D) tax credits is a Government incentive that rewards UK businesses investing in innovative science and technology projects.

You should speak with your accountant as this is a specialist area. Your accountant will be able to submit your claim and ensure the value of your claim is maximised. This also ensures it can be robustly backed up should HMRC challenge it.

Dividend allowance

If you own a limited company, receiving dividends can be a tax-efficient method of payment. Dividends attract lower rates of income tax compared to salary, and are not sub ject to National Insurance Contributions (NIC).

Most individuals also have a dividend allowance of £500, resulting in the first £500 of dividend income being tax-free.

Don’t miss tax deadlines

There are several deadlines you need to meet for submitting tax-related documents. Examples are the 31st January cut off for submitting your self-assessment tax return online and 31st July for paying your second annual payment on account.

Miss those deadlines and your tax bill could quickly increase due to penalties.

You should keep track of the various deadlines and submit tax returns and payments on time. Read our guide on key dates for limited companies and self-employed individuals.

Get tax planning advice from TaxAssist Accountants

Whether you have just started your business or you have been running it for a long time, Our experienced team can help with your tax planning needs. Call us on 0118 926 9284 or fill in our online enquiry form.

Last updated: 6th August 2024