Current studies have put HMRC within the highlight, revealing irritating delays that imply some enterprise house owners are ready greater than 4 months to obtain a refund on their overpaid tax.
For a lot of small companies, this isn’t simply an inconvenience. It might probably create severe cashflow issues, which might pressure day-to-day operations and hinder progress.
The neatest method to keep away from delays – and extra importantly, to maintain your hard-earned cash working for you – is to make sure you’re not overpaying tax within the first place.
Right here, Tom Biggs breaks down three key methods that can assist you keep away from this case in your online business.
1. Preserve correct data
One of many greatest pitfalls small enterprise house owners fall into is getting swept up within the day-to-day and neglecting their bookkeeping.
Given the UK’s tax code is likely one of the most complex on the earth, making overpayments is a simple mistake to make, however this may be minimised by sustaining organised and correct monetary data. With out doing so, it’s inconceivable to accurately calculate tax liabilities and substantiate any deductions or credit claimed.
It might probably additionally lead to fines from HMRC if tax returns are submitted with errors, which causes the alternative drawback of needing a refund.
Making certain you adjust to tax laws and deadlines can be important to keep away from curiosity prices and penalties for late submitting or underpayment. Implementing strong accounting processes will assist you hold correct data, which is able to make the tax return course of considerably simpler and imply you keep away from overpaying tax.
2. Plan strategically (and proactively)
Leaving your tax return to the final minute means you don’t have time to plan successfully and may result in overpayment of tax as a result of incorrect calculations. Proactive tax planning all year long means you have got a clearer headspace to maintain correct data, and you’ve got extra time to establish tax-saving alternatives.
This would possibly contain altering the timing of revenue and bills, discovering the optimum authorized construction for the enterprise, or profiting from tax-advantaged retirement plans. As an example, Company Tax is charged on a sliding scale relying on a enterprise’ taxable revenue. So, by strategically planning, you may scale back the enterprise’ taxable revenue to lower the quantity of Company Tax owed.
A professional tax advisor may also help you develop and implement a tax technique tailor-made to your online business’ particular circumstances.
3. Maximise your allowable deductions and credit
Tax deductions scale back a enterprise’ tax legal responsibility by deducting sure bills from its revenue. These bills are typically issues that make it attainable to maintain the enterprise, akin to operational prices like lease and utilities, investments in tools and analysis, or PR and advertising prices. In apply, which means if a enterprise has a taxable revenue of £100,000 however has £20,000 value of allowable bills, the precise taxable revenue can be £80,000.
There are additionally tax credit to think about. These work in a different way from deductions as they immediately scale back the quantity of tax owed, fairly than the pre-tax revenue. There are a number of forms of tax credit obtainable for various industries, together with R&D tax credit and the Annual Funding Allowance (AIA). These act as incentives for companies to spend money on sure areas to qualify for a reduction on their tax invoice. However be warned, they’re continuously altering and have sophisticated qualifying standards, so it’s essential to seek the advice of a tax professional earlier than starting any claims.
Ultimate ideas
Navigating the complexities of the UK tax system as a small enterprise proprietor can really feel like a minefield, however overpaying on tax doesn’t must be inevitable.
By prioritising record-keeping, embracing proactive and strategic tax planning all year long, and exploring obtainable deductions and credit, companies can considerably scale back their tax liabilities and their probability of overpaying tax.
Not solely will this keep away from frustration with prolonged refund waits, but it surely might scale back your general tax legal responsibility from the outset to contribute to the general monetary well being and stability of your online business.
Learn the way Wellers can help together with your strategic tax planning.
Ercan Demiralay is associate on the small enterprise accountancy agency, Wellers.
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