Maintaining good tax and accounting records and preparing your own tax return are major jobs that can take considerable time and effort. Small business owners are usually so busy running their businesses that these tasks can be neglected and they may not always have the budget to employ a chartered accountant. In London and other major cities in your region look out for government funded Business Hubs that will often provide some free information to give you a helping hand with tax affairs. If you do not completed your paperwork fully and accurately you could end up costing your business a significant amount of money in fines and interest on unpaid taxes. Keeping that in mind, take a look at these top tips for making your business more efficient with regard to all issues relating to tax.
Keep a separate bank account just for tax
It is essential to open a distinctly separate bank account into which you transfer regular amounts to cover your tax bills. Depending on when you get paid by clients and customers set up a periodic automated payment. This will help with controlling your cash flow and ensuring you have sufficient funds once your tax bill arrives. If you keep funds intended for tax payments in your main business bank account it is all too easy to spend that money before the bill arrives then receive a nasty shock and risk potential fines if you are unable to pay the full amount.
Use tax efficient payment schemes
Companies that are set up with one or more directors can often pay the directors a basic salary and then their remaining income can come from dividend payments (assuming the company has adequate profit to issue a dividend). This does not affect the amount of corporation tax a company will pay but it will minimise the amount of personal tax that the directors have to pay and happy executives make for a happy company.
Claim back Value-Added-Tax (VAT) on bad debts
If any client defaults on a payment then your business will not want to have to pay VAT or sales tax on the unpaid debt, particularly since you will already be out-of-pocket. So remember that for any invoices remaining unpaid after 6 months the business can reclaim any sales tax or VAT that has already been paid.
Take advantage of free advice from an accountant
Whilst your business may not be able to employ a highly qualified chartered accountant, especially if you are based in London or some of the other very expensive cities worldwide, there are still various government-backed initiatives designed to help start-up businesses, often with free accounting and tax advice available. However, accountants and tax advisers can be more affordable than you might think and a fixed-fee accountancy service can help budget effectively for these costs. What many business owners soon realise is that an accountant is one of those costs worth paying for the peace of mind that all your tax affairs have been handled correctly; that you have paid the right amount of tax – neither too much nor too little.
There are also many ways in which an accountant can save you money because they are familiar with all the current tax-reliefs available, and hence can easily cover their fee in the tax savings they make for you.