Getting the max out of tax

It isn’t just selling lots of your goods or services that will help your company flourish and grow. Business tax planning is a critical area for all companies of any size and can make the difference between success and failure, as Terri Halstead, Tax Partner, Haines Watts Birmingham, explains:  

Efficiency is paramount

What owner managers want is to run their businesses as efficiently as possible, and tax planning is one element to help make sure that happens. Good planning helps manage your tax liability, meaning there are no nasty surprises with cash flow. What’s more, you may be able to lower it by maximising all tax relief and credits. In my experience, tax is one of the key areas that owner managers are interested in. Everyone’s a bit scared of it, especially because the compliance process is becoming ever-more arduous. Legislation has increased significantly and things get out-of-date quickly and often. Efficient business tax planning helps you keep on top of everything in a rapidly changing environment. How good – or not - owner managers are at business tax planning depends entirely on who their accountant is. A good accountant knows that tax planning should be considered for the overall business in terms of short, medium and long-term goals. Here’s a flavour of the types of issues you should be thinking about.  

Spend spend spend?

Firstly, you need to consider when and how you incur expenditure. If you’re going to buy a capital item, like a big piece of machinery, there will be tax implications and you need to know whether it would be best to make the purchase before or after your year-end. The answer, of course, is that it’s different for different companies and depends on a myriad of factors, including the level of profit you’re expected to make and what else you may have bought that year because it all leaks into capital allowances. Currently, you’ve got an allowance of £1M from 1 Jan 2019, which gets split in accordance with when your year-end is. It may be that if you delay the purchase by a month or so you will get more allowance on it, or, if you haven’t spent very much that year it may be more tax effective to bring it forward. So, business tax planning is important in determining when to spend your money.  

Research? That’s a relief

Another element is whether or not your company qualifies for R&D tax relief. If it does, you need to be thinking about whether or not to pay yourself via dividend or salary. Dividend is traditional for many, but, actually, if you’re going to make an R&D claim, taking a salary may be more cost effective. You need to look at when you recognise income, especially if you have long contracts. You might also want to think about whether you’ve got the right year end. If the business is cyclical it may make more tax sense to move your year end. If you’re thinking of selling your business, it’s important to know what assets you’ve got and whether you it may be sensible to take some out of the business because of Entrepreneurs Relief. VAT is another area that needs attention. Usually it’s paid quarterly so it makes sense to know how much it’s going to be so you can plan around it. It’s all about cashflow and making sure you don’t run out of money when you need it.  

It’s good to talk

Finally, throughout the whole tax planning process, it’s really important to keep the dialogue open with your accountant or tax advisor. Talk to them about any transactions you are thinking of making because you might end up with a better overall tax result.  

If you need help with business tax planning, talk to our specialist team about how we can help.