From experience, expert tax advice for UK small business owners is always welcomed when delivered but more often than not, it is infrequently asked for. As a small business owner it’s more than understandable that other priorities can sometimes take precedence over company accounts. After all, there is always so much to do such as building brand awareness, gaining new customers and growing your customer base.
Small business owners are often time-poor but company accounts, including cash flow management, late payments, bad debts and business tax should all be at the top of your list of priorities. What’s a business if your finances are not in order and working hard for you?
Helpful expert tax advice for UK small business owners in 2016 …
- 5th April … put it in your diary
From the 5th April, the government is making big changes to the dividend route for businesses. As a UK small business, and assuming you are making a profit, we would recommend you consider bringing forward your dividend payment to save on tax. Naturally, this will mean that your expected dividend will be less in the next financial year but the tax saving could well be worth it. This is not a ‘one size fits all’ so you need to take advice on this.
- Assess your personal situation
If you do decide to bring forward your dividend payment just double check that this doesn’t take you into the income tax bracket of over £100,000 as this could impact the level of tax taken against your income and may not be advantageous in your circumstances.
- Saving for the future
As a UK small business owner, you will soon be legally obliged to provide employee contribution pensions otherwise referred to as ‘auto-enrolment’. Failure to do so could lead to fines of up to £2,500 daily depending on how many members of staff you employ.
A business owner can put up to £40,000 per year into a pension tax free via an employer based pension. If you were to take the alternative route and save personally, the government would charge National Insurance and Employer National Insurance. So what’s the best route for your business? A business receives tax relief on pension payments and also avoids National Insurance – do it via the business rather than personally if you can.
- Digital Tax Returns
The government has announced that from 2016 they will be introducing digital tax accounts. The move will allow small business owners to manage their tax returns in real-time and submit accounts throughout the year rather than in one go at the end of the year. By 2020, your business should be able to link in your accounting software and bank accounts directly to your digital tax account. The benefit? If your account information is submitted regularly your tax bills will be more closely related to your overall performance – no nasty surprises.
- Be wary of Phoenixing
Companies have used the Phoenix route to avoid obligations such as onerous leases or large tax liabilities by going into liquidation and buying the business back from the liquidator, but without the liabilities. This has been known as a “pre-pack”. The other reason for doing this is where a company has built up substantial profits and wishes to extract them tax-efficiently. In this case the company is liquidated and the money comes out as a capital gain taxed at 10% rather than as income taxed at a much higher rate. The business starts up again the next day in a new company. There is existing legislation to stop this but HMRC have apparently been reluctant to use it. However, from 6 April the monies will be taxed as income rather than as capital gains if a similar business is started up within 2 years.
Are you a small business owner looking for tax advice for the new financial year? Get in touch, the HB Accountants team would be happy to connect with you to see how we can help your financial planning and accounts.
As responsible professionals, we always advise seeking professional advice on your unique circumstances before proceeding with any of the points raised in this article.
