Ways to Save Money on Taxes

Save money with these critical tax-saving tips. Are you a fast growing ‘young’ limited company? Or perhaps you’re thinking of changing to limited status? You need to read this. Learn the critical importance of putting a tax strategy in place – from day one.

Do you want to pay more tax than you need to?

No – me neither. This can be a real danger for ambitious, fast-growing businesses, especially in the early weeks and months of their limited status. Whatever the nature of your business – a trade, a service provider, a self-employed agent – the dangers are just the same. It’s easy to be so wrapped up in dealing with the front-end of the business, that we forget those all-important tax-saving steps.
But before we walk through the steps, here’s an all-important reminder – and this one really matters …
Meet your deadlines – Don’t procrastinate! Putting off your returns till they become officially ‘late’, can result in very heavy penalties.

So – here we go.

8 steps to save you money:

Maximise your take-home pay – by carefully balancing your salary and your dividends. Here’s an example – Make your salary £8 000 – tax free. Take dividends of up to £37k @ 7.5% (tax). This gives you take home pay up to £42k.

If you’ve reached the higher rate threshold, think about delaying taking profits until a future tax year. You may save tax.

Split your shareholding with your spouse. You might benefit from using their tax allowance. Always check first with us that it’s legitimate.

Think about joining the Flat Rate VAT scheme. This can make your VAT processing simpler and can mean paying less tax. Also, in year 1, you’ll receive an extra 1% discount on the flat rate you pay to HMRC.

Make the most out of the expenses you can put through your company. There are plenty of savings you can make. For example, you may be able to claim against the costs of working from home.

Remember, if your turnover reaches £85,000, you must register for VAT. Ignore this … and there’ll be a fine to pay.

Think about an executive pension scheme. When your company invests pre-tax income into the pension, you’ll save a considerable sum.

If you’re transitioning from being self-employed one year to a Limited Company next, you can set one year’s loss against the previous year’s profit. Here’s an illustration:

The background
In the Tax Year 2016/17 – you earned £50,000, on which you paid the tax of £9,200.
In the following Tax Year 2017/18 – as a business, you made a loss of £10,000.

The result – So now, last year’s income has been reduced by carrying back the loss of £10,000, making the taxable income £40,000. So the good news is … a Tax Refund of £3,400!

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Disclaimer

This legal information is not the same as legal advice and you may not rely on our post as a recommendation of any particular legal understanding. Please, consult an attorney if you’d like to get advice on your interpretation of this article.

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