Running a business involves wearing many hats, and ‘financial controller’ is one of the most important. Understanding the basics of tax planning is about making smart, legitimate decisions that guarantee the profits you work so hard for end up in your pocket, not HMRC’s. This guide will cover four key areas every business owner should master to keep more of what they earn.
- Master the Art of Allowable Expenses
This is the bedrock of business tax efficiency. Any cost incurred “wholly and exclusively” for the business can be deducted from your revenue, reducing your taxable profit. Whilst stock and materials are obvious deductions, many business owners miss legitimate expenses that could save them hundreds, or even thousands, of pounds annually. A proportion of home utility bills if you work from home, business mileage, software subscriptions, and professional training courses are all allowable. Mobile phone contracts used for business purposes, professional membership fees, and even a percentage of your broadband costs can be claimed. The key is keeping meticulous records, such as saving receipts and documenting the business purpose, which means you claim everything you’re entitled to without worry.
- Make Your Investments Work Harder with Capital Allowances
Investing in your business’s future can also reduce your tax bill today. Capital allowances allow you to deduct a portion, or sometimes all, of an asset’s value from your profits when you buy significant equipment that you keep for use in your business. The Annual Investment Allowance currently enables businesses to claim 100% tax relief on qualifying plant and machinery up to £1 million. This means purchasing a new van, computer equipment, or machinery helps you grow your business but simultaneously lowers your tax liability. This government incentive encourages businesses to invest in better equipment whilst benefiting from immediate tax relief.
- Pay Yourself in the Most Efficient Way
For directors of limited companies, how you take money out of the business is a major strategic decision with significant tax implications. Reports indicate that approximately 2.1 million people in the UK are company directors, many of whom could benefit from tax-efficient remuneration structures. The common approach is taking a small director’s salary (usually up to the National Insurance threshold) and drawing the rest of your income as dividends. Since dividends are taxed at a lower rate than salary income, this strategy can result in significant personal tax savings compared to taking a large salary. The exact optimal split depends on your personal circumstances and total income level.
- Know When to Call in the Professionals
Whilst these strategies are fundamental, a growing business brings complexity. Issues like VAT registration, hiring your first employee, research and development tax credits, or planning for a future sale require specialist knowledge. Making the wrong move can be costly, potentially resulting in penalties or missed opportunities for relief. When the stakes get higher and you want to make sure that your business is structured for maximum long-term efficiency, consulting with experienced tax and business advisers provides tailored guidance for your specific situation. Professional advice often pays for itself many times over through the tax savings and strategic insights it delivers.
Smart tax planning is all about understanding the options available and making informed decisions that legally minimise your tax burden whilst supporting your business growth.