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8 Tax Savings Tips for Small Business

Andre Spiteri
Globe maker in workshop working on globe surrounded by a variety of other globes|Small Business Owner paining globes: tax tips for small business

No one wants to pay more tax than they have to. But let’s be honest. Trying to figure out tax rules can be complicated, stressful and boring.

Here are some basic tax saving tips for small business owners that can help you make the most of the tax relief options available.

Choose the right business structure

If you’ve just started out, doing business as a sole trader is usually the easiest and best option.

But as your profits grow, changing your structure could reduce your tax bill.  Partnerships and limited liability companies both have their pros and cons. So, it’s worth speaking to an accountant for advice on which structure would work best for your business.

Track small expenses

One in four small businesses don’t claim expenses under £5, because they think it’s not worth the effort. This is a mistake.

It may be tempting to leave small amounts out of your tax calculation. But you’d be surprised at how quickly they can add up.

Tracking even the smallest expenses doesn’t require much effort. Many online accounting software programmes allow you to upload receipts. Simply snap a photo with your phone, upload it and the expense will be automatically added to your expenses log. That way, you won’t leave anything out.

Treat your staff with tax-free benefits in kind

Certain benefits are tax-free for your employees. And you can use them to reduce your tax bill.

These include:

  • Meals. Free or subsidised meals in a staff canteen
  • Hot drinks and water at work
  • Mobile phone: Up to one phone per employee
  • Workplace parking
  • Annual parties: These must be open to all employees and cost less than £150 per person
  • Health checks: One heath-screening assessment and one medical check-up each year
  • Long service and suggestion scheme awards, within certain limits

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Take advantage of the capital allowance scheme

You can claim back 100 percent of the first £200,000 you spend on large business purchases each year. So, if you buy eligible capital items before year-end, you can offset the entire cost against your profit for that year.

HMRC calls eligible items plant and machinery. They include:

  • Business-related equipment, including items such as safety helmets, boots and tools
  • Machinery
  • Cars, vans or lorries which you buy for business use

Offer employees a salary sacrifice scheme

Salary sacrifice schemes are a win for you and your employees. Your employees pay less tax and national insurance. And you save on employer’s national insurance contributions.

Childcare vouchers and cycle to work are the most popular schemes.

Make the most of your pension plan

Contributions to a pension scheme are tax-free. As a plus, by investing more in your pension, you can reduce your personal tax bill.

By law, you have to offer your staff a workplace pension scheme if:

As a general rule, your employer contributions to a registered pension scheme are tax deductible.

Claim a tax deduction if you work from home

If you work from home, you can claim a tax deduction for part of your household bills. Expenses you can deduct include:

  • Heating and lighting
  • Mortgage interest (not capital) or rent
  • Council Tax
  • Internet and telephone use
  • Water rates
  • Some repairs and maintenance work
  • Buildings insurance

Transfer assets to your partner

Does your husband, wife or civil partner pay a lower rate of tax?

If so, it’s worth considering transferring some of your income-generating assets to them. Income-generating assets include any investments and the profits from a rental property.

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