As we kick off the new financial year, small businesses and enterprises should already be thinking about how to plan their business in order to minimize their tax liability. For many business owners, taxes are a major source of stress and worry, so by starting to plan your tax strategy early in the year, you can ensure that your year end goes smoothly later on. Here are some of the best ways in which you can minimize your tax liability for this financial year.
1. Make employee reimbursements accountable
If you include reimbursements for things like travel, entertainment and sustenance in an accountable format, these will not be treated as additional compensation. This means you can reduce your employment tax liability and your employees will be happy too, because they will not have income included on their own tax forms for the reimbursements they receive. As well as the usual expenses, you can consider including things like employee uniforms, tools and other incidental items.
2. Keep all receipts relating to your car
If you run a car, van or truck for business purposes, you can use the fixed mileage allowance set by the tax authorities to calculate the available write off figure for your use of the car. However, the option to this is that you can offset things like fuel, repairs and maintenance of the vehicle but exclude the mileage calculation. By keeping all your receipts and invoices for money spent on the car, you will be able to make an assessment at the end of the tax year as to which route works best for you. Whichever way you decide to go, you will need well documented records of driving usage including odometer readings and dates, so keep a good record throughout the year to help with end of year calculations. In addition to this deduction, you can deduct payments for parking fees and any toll charges from your taxes, as long as you have kept all the receipts and proof of payment.
3. Employ your kids
If you have children who help out with the business, put them on the payroll. Kids over 16 have a tax free allowance equivalent to that of an adult, and the money you pay them is a tax deductible business expense. As well as benefiting your company financially you will also be able to get work done that needs doing, whilst teaching your children the value of hard work and responsibility.
4. Change your accounting and business type to suit your needs
There are a number of different ways in which companies can account for their businesses. Sole traders may be better off as limited companies, companies that manufacture goods may be able to change the way they account their inventory and small businesses need to consider whether their staff are better off as freelancers, PAYE employees or on short term self employed contracts. To get the inside track on what will work best for your business, it’s a good idea to enlist the support of an accounting professional who will already have a good understanding of tax rules and how businesses can benefit.