Benjamin Franklin famously said there are only 2 things in life which can be said to be certain: “death, and taxes”.
True as that may seem, fortunately there are ways that individuals and businesses can effectively reduce their tax liabilities. In this post, we run through 7 simple strategies that could save you money on your tax bill.
Please note, this list is meant to serve as a source of inspiration for further discussions with qualified professionals who can advise you as to your eligibility to utilise any of these methods. We do not accept any responsibility for the misuse of any information contained within.
Capital Allowances
You can reduce your tax bill by buying assets for your business and claiming Capital Allowances. We’ve got a helpful blog post on Capital Allowances which can be found here.
Pensions (Limited Companies)
Contributions to private pensions from a limited company are often an effective method of reducing taxable profits, reducing the corporation tax chargeable for a given accounting period. We have a blog post on this which can be found here.
For owner managed businesses, it's worth noting that it is also be possible to create personal pension schemes, in which you could contribute commercial property that you trade from, which has several tax and commercial benefits.
Pensions (Individuals)
The UK government incentivises individuals to contribute to their pensions by providing a type of income tax relief in the form of an increase to the income threshold available to the individual which is subject to the lowest rate of tax (the basic rate band). We have a blog post on this which can be found here.
Marriage Allowance
If you’re married and your spouse has income of less than £12,570, you may be entitled to income tax relief of up to £1,260 each tax year by claiming Marriage Allowance.
Bad Debts
Businesses with bad debts (money which is owed from customers which is deemed to be irrecoverable, such as from a customer who has gone into liquidation) can obtain tax relief by ‘writing off’ the bad debt in their accounts, effectively reducing the taxable profit for the year. You may also be able to recover the output VAT on the debt written off.
Expenses
One of the simplest ways to reduce your tax bill is to simply reduce the profitability of the business for the year, which can be achieved by increasing the expenses of the business during that year. So long as the expenses are ‘wholly, exclusively and necessarily’ for the purpose of trade, this is a viable and effective option.
Mileage
Often an overlooked cost in owner businesses. It is possible to claim tax relief on business miles incurred by employees (including directors) during the year. We recommend keeping a weekly (or monthly) log of all business miles. Using the approved HMRC rates of 45p on the first 10,000 miles and 25p on each mile thereon, the business can claim tax relief on any payments to employees. For owner managers, it might be that this cost becomes a "credit" on your loan or drawings account.
Dividends
Limited company shareholders are eligible to receive income from their business by way of a dividend, which is subject to very low rates of income tax when compared with traditional salary payments. Dividends can be a useful tax planning tool to reduce the overall effective tax rate charged on your income each year when compared with the traditional salary route.
More help
For any further clarity, or to speak to one of our Chartered Tax Advisers about more ways to keep your tax bills low, please contact us:
Like all of our blogs, we aim to help make the world of tax more understandable to those it impacts. If one person reads this and feels they have learned something, we consider that a success. If this blog has helped you, please let us know by providing feedback below:
Has this blog helped you?
Yes
No