Tax planning as your business grows
All businesses need to plan, whatever the initial reasons for setting up in business.
The plan might be to reach a particular level of turnover or number of customers, expand by taking over other businesses, or to produce enough income to pay your personal bills.
Whatever the type of business, the one constant is to consider the tax situation for not only the business but the business owners, their families, and employees.
Reducing the tax bill means more money for other financial goals (e.g., advertising campaigns, capital investments, employee bonuses, or personal income goals).
Planning for tax payments enables you to keep the strategy on course & not get an unexpected tax bill.
A tax planning strategy might include:
1. Beginning the journey
Setting up a business is the first step towards a tax planning strategy. All businesses need money to get off the ground, whether for some basic office equipment or more elaborate machinery & business premises. Tax relief can be claimed on many start-up costs.
Once the business is up and running, you should ensure all allowable expenses are claimed & other available tax claims made (e.g., for capital items). Planning for tax payment dates depends on the type of business.
2. Growing the business
As a business grows, so will the tax bill & administration (e.g., VAT returns are usually required quarterly should the VAT taxable turnover exceed £90,000).
Maximising deductible costs & planning when to buy or replace equipment can reduce any tax payable, as will taking advantage of available tax breaks.
3. Incorporation
As the business grows, a different legal structure may be more suitable. Incorporation may be the better strategy if the business started up as a sole trader.
But, as each business is different, trading through a limited company does not always reduce the overall tax bill.
4. Taking on staff
Taking on staff needs to be included in your strategy & in tax planning, as it is a sizeable cost, but it saves you time & means you can do more, and you get tax relief on the gross amount paid, plus employer’s NI, & pension payments.
5. Employing family
You could employ family members or make them shareholders, moving income from you to someone else in the family, especially if you’re in a higher tax bracket, for example, to your spouse, a child, or a retired parent.
6. Retirement planning
Strategic planning for retirement needs to be undertaken years before the final date.
Whether the intention is to wind up the business or sell, you should employ a tax efficient strategy, including planning to withdraw any monies built up over the years.
Practical tip
You should get professional advice to Formulate a tax planning strategy, which should be reviewed regularly to identify any changes that affect the tax position.
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