Tax tips for small business owners: 20 actionable ways you can save on taxes

Tax Tips for Small Business Owners
20 Actionable Ways You Can Save on Taxes

Saving money on taxes should be a top priority for owners of small and medium-sized enterprises (SMEs). After all, to become a successful entrepreneur you need to know the boundaries of what you can do and the best way to go about it.

Thankfully, our free tax tips for small business owners are here to enlighten you about some of the major issues you should be considering.

20 actionable tax-saving tactics for small businesses:

1. Take money out of your business in the most tax-efficient way

If you’re a limited company, it makes sense to take money out via a combination of salary and dividends. There are also other tax-efficient strategies to explore to maximise tax savings.

2. Pay your spouse a tax-efficient salary

Whilst the salary must be sensible and reflect the work carried out (and must be paid), if they earn more than £123 per week they’ll qualify for a basic state pension and the additional state pension. If they earn below £175 there will be no National Insurance Contributions liability. However, all details must be submitted to HMRC especially if a state pension record is required.

3. Consider paying Class 2 National Insurance Contributions

Although Class 2 National Insurance Contributions will be abolished from 6th April 2024, if your self-employed profits are below the small profits threshold (£6,725 in 2024/25), you may wish to continue paying voluntary class 2 contributions of £3.70 per week to build up your entitlement to a State Pension.

If your self-employed profits are over the small profits threshold, you will still be entitled to access state benefits and will not have to pay voluntary National Insurance Contributions to protect your entitlement to state benefits.

4. Make key employees partners if you’re a sole trader or partnership

This can help you make significant National Insurance savings for both you and key individuals by making them partners, whilst also tying them into the business.

5. When investing in a new car, van, tools, computer, or other business equipment, always consider the best time to buy them and the best way to pay for them.

Tax relief is received a lot quicker if you make the purchase shortly before rather than shortly after your business year-end.

6. If you’re self-employed, make sure the Taxman sees it that way too!

A one-man band business (not a limited company) may firmly believe they are self-employed, but they should make sure there is no possibility of the Taxman charging you more because he views you as being ‘employed’ by one or more of your best customers.

7. Consider whether your business would be better off as a sole trader, partnership, LTD, or limited liability partnership.

For some businesses, the scales may have tipped in favour of becoming a company, but for a few others, it may now be better to go back to being a sole trader or partnership. Limited liability partnerships may be better than either of these options for some businesses.

8. Plan ahead and minimise your tax bills when you sell the business

With proper planning at an early stage, you should be able to keep much more of your money in your pocket. It’s all about securing capital treatment rather than income treatment, as well as securing Business Asset Disposal Relief where the conditions are met. This means that the proceeds from the sale of your business could be taxed at 10% rather than 20%.

9. If you are not already VAT registered, make sure you have a system that ensures you are still entitled to stay non-VAT registered.

If your sales in the previous 12 months are more than £85,000 for the tax year (2024/25) then you MUST register for VAT immediately, so it’s vital to monitor your 12 monthly cumulative sales every month.

10. If your sales (with the exclusion of VAT) are less than £150,000 consider switching to the flat rate VAT accounting scheme.

Under the flat rate, smaller businesses do not need to calculate the VAT liability from invoices received and issued. Instead, they can pay VAT as a flat rate percentage of their sales. This is sometimes easier to administer and may result in you paying less VAT.

11. Owners who own business premises should maximise the capital allowances that can be claimed

Extra tax relief on the features within the business property may be possible, even if the property was bought many years ago. Conducting a detailed review might result in significant tax savings and, possibly, a significant tax refund.

12. If you have a company pension scheme, make the most of it – it’s a highly tax-efficient way to reward and retain key staff.

Employer contributions into a pension can provide significant savings for the employee and the employer. Because of recent auto-enrolment changes, all employers are required by law to make contributions, so it is well worth considering how to make potential savings now.

13. If your employees use their own car for company business, make sure you utilise the mileage rules

Employers can pay staff up to 45p per business mile tax-free, dropping to 25p per mile after 10,000 business miles for cars used on business journeys. Where employees receive less than these limits for business journeys in their own cars they can claim the difference as a deduction against their wages and reduce their personal tax bill.

14. Utilise the rules for employees taking home company vans

From 6 April 2007, unrestricted private use is able to generate a ‘benefit in kind’ chargeable to income tax for the employee. This is based on a flat rate of £3,960 per annum. An additional £757 is chargeable if fuel is also provided. Carefully documented procedures restricting private use could avoid this tax. Remember that the definition of ‘van’ may include certain pick-up trucks.

15. Cut your costs and improve your cash flow by paying your PAYE and National Insurance quarterly, not monthly.

This is possible if your average monthly PAYE and NIC payments are less than £1,500.

16. If you have employees in relatively low-wage roles, advise them to look into claiming Working Tax Credits and Child Tax Credits

Even as an employer, you may be eligible to claim these credits too, or possibly Universal Credits.

17. Always stay on the right side of the minimum wage law

From 1st April 2024, the National Living Wage for people aged 21 and over is £11.44. For those aged 18 to 20 years old, it is £8.60 an hour. If you are 16 or 17 it is £6.40. It is also £6.40 if you are an apprentice.

Be aware, though, that the National Minimum Wage rates change every October, with the National Living Wage rate changing every April. Stay up to date with the changes here.

18. Consider giving shares to a spouse to make use of their dividend allowance (£500 for 2024/25) and any unused basic rate band for income tax purposes. 

In addition to the income tax benefits, a spouse who owns at least 5% of the ordinary share capital in a trading company may also qualify for Business Asset Disposal Relief. 

19. Pay your children up to £12,570 a year (tax-free)

Make full use of the fact that each one of your children can earn up to £12,570 per annum (in 2024/25).

20. Make the most of ALL tax-free benefits in kind for your staff – including:

• Providing mobile phones (no more than one per employee)
• Subsidising certain forms of transport to and from work – including bus fares
• Providing workplace nurseries and crèches
• Sporting and recreational facilities
• Health checks
• Car parking
• Trivial benefits of up to £50
• Paying relocation expenses
• Up to £150 per person per year for staff parties/events
• Making cash awards for contributions to a staff suggestion scheme
• Allowing staff to use pool cars for business purposes
• Paying staff up to an extra 5p a mile if they use their own car to take fellow employees on the same business trip
• Providing company bicycles
• Pay employees up to 20p a mile when they use their personal bicycles on business journeys – or up to 24p a mile for a motorbike.

Want to benefit from more tax tips for small business owners?

At Northern Accountants, we regularly get in touch with our clients to discuss tax tips like these and outline other areas where we believe you, and your business, can save money.

Are you getting the most out of your business? Would you like to get regular free accounting advice and tax tips?

If the answer is yes, please get in touch – our expert team is ready to help your business succeed.

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