Being the owner of a small business is an immensely rewarding experience. Taking a business idea from a concept into a successful venture with yourself at the helm gives a great sense of pride. In the day-to-day running of the business, you’ll want to be reassured that things are going smoothly.
So perhaps one way to feel that reassurance is knowing that your business taxes and expenditures aren’t a shock each time. Brian Alfred provide a few ways that you can reduce and stress you might have when it comes to business expenses and tax.
Filing taxes is something that has to be done annually by all registered businesses which aren’t considered self-employed. As filing your tax return is such an important part of operating a business, you’ll want to make sure that the process is as simple as it can be.
For example, one way you could do this is to keep a secure filing cabinet in the office, which you could use to file away any cases of business income and expenditure throughout the year. This will help you stay keenly aware of your business’s financial situation throughout the year, whether it’s knowing exactly how much money has come into the business, or how much a recent business upgrade cost in total.
The other benefits to keeping accurate and dated records is that you’re in a great position to respond to HMRC if a tax investigation happens and you need to provide evidence of business income and expenditure. Having a wealth of organised information at hand can help make the process of liaising with HMRC during times such as this far less stressful than they might otherwise be.
If worrying about the costs of running a small business has been weighing on you, you might be able to help reduce those costs by claiming back some expenses, which can help to reduce your overall tax bill, leaving more money to invest back into the business.
For example, claiming Employment Allowance can reduce your National Insurance contributions by up to £3000 per year, while claiming for small business rate relief can reduce your business rates if your property’s rateable value is lower than £15,000, or eliminate the need to pay business rates entirely if it’s below £12,000. Rateable value is calculated based on market rental value as estimated by the Valuation Office Agency.
Similarly, if you’re looking to invest into your business’s infrastructure, there are a few ways this can work. Through the annual investment allowance (AIA), you can claim capital allowances on what is referred to as plant and machinery. These costs will be taken from your profits before tax.
‘Plant and machinery’ refers to items you purchase to keep in your business, This could be, for example, fitting a CCTV system, installing air conditioning or heating systems, or construction work to your building needed to accommodate some new equipment or machinery.
Self-employed people also have a range of ways to reduce their tax bill. There are many business expenditures that can be claimed back on as allowable expenses, which can help to reduce the amount of profit you made which is considered taxable.
For example, some of the things that you can claim back on include:
• Travel costs such as fuel or transport fares
• Advertising costs such as newspaper adverts or website hosting
• Clothing expenses such as your and your staff’s uniform
• General costs of your business premises, such as heating and lighting costs.
This is even the case if you work from home, too. However, you should make sure to claim for only the expenses strictly to do with work, rather than personal costs.
For example, if your phone contract is £40 monthly, and you use it for business reasons half the time, then only claim £20 as a business expenditure.
You can also claim a flat rate of relief based on the amount of hours you work each month: under 50 hours worked in a month means you can claim £10 for that month, while over 101 hours a month allows you to claim back £26 for that month. Over the course of a year, this can add up significantly and drastically help reduce business expenses, helping to leave you more time and energy to invest back into your business itself.