Last Updated on 04/12/2024 by Adrian Lamb
Best Ways for a Small Business to Save on Tax
Tax advice for small businesses in 2025 : small businesses managing taxes is a key aspect of financial planning. Understanding how to legally reduce your tax liability can help maximise profits, boost cash flow, and reinvest in business growth. Below are some of the ways small businesses can minimise their tax burdens.
- Choose the Right Business Structure
The structure of your business impacts your tax liabilities. In the UK, the most common types of business structures are sole traders, partnerships, and limited companies, each with different tax implications. Choosing the right structure can have significant tax advantages, and it is often worth consulting with an accountant to select the most tax-efficient option for your business.
- Take Advantage of Tax Allowances and Reliefs
The UK offers various tax allowances and reliefs that can reduce your tax bill. Some of the most important ones include Annual Investment Allowance (AIA) and Research and Development (R&D) Tax Credit. By making use of these tax reliefs, small businesses can lower their taxable income and keep more profits within the business.
- Claim All Business Expenses
Ensure you are claiming all the allowable expenses related to your business activities. These expenses reduce your taxable income, lowering the amount of tax you need to pay. Common business expenses that are tax-deductible include rent, office supplies, employee wages, as well as costs associated with legal and accounting services.
- Pay Yourself a Salary and Dividends (For Limited Companies)
If you operate as a limited company, one effective strategy is to pay yourself a combination of salary and dividends. This can reduce your overall tax burden.
- Make Pension Contributions
Contributing to a pension scheme can provide tax advantages for both the business and the owner. Pension contributions are deductible business expenses, meaning they reduce the company’s taxable profits. In addition, pension contributions are free from National Insurance, which is another saving.
- Take Advantage of the Trading Allowance (Sole Traders)
For small businesses earning less than £1,000 in a year from trading (for example, if you run a side business), you may not need to pay tax on those earnings thanks to the Trading Allowance. This allowance applies to businesses with small earnings, and it means you can earn up to £1,000 tax-free, reducing your administrative burden and potential tax liability.
- Keep Accurate Records
Maintaining accurate financial records is essential not just for compliance but also for tax efficiency. By keeping good records, you ensure that you don’t miss out on any allowable deductions or tax-saving opportunities. Proper bookkeeping can also help you track expenses, forecast tax liabilities, and stay on top of deadlines.
Conclusion
Small businesses in the UK can save on taxes by making smart decisions and taking advantage of various tax-saving opportunities. The key to reducing your tax burden lies in careful planning and informed decisions.
As always if you have any questions regarding tax advice, whether it’s income or capital gains tax, please send us an email info@oboyleaccounting.com or call us on 028 91469054