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SMEs Guide to Managing Tax Efficiently

Any small business owner will know that there are many challenges to be faced when running your own business and you need to have the knowledge and skills necessary to face these if your business is to thrive.  Finance may be one of the biggest challenges that you have to take on board and this can be one of the most difficult to manage, distracting you from the day to day running of your business.  With ever-changing tax rules and regulations, keeping abreast of tax matters will give you the confidence necessary to face the future and manage your business in the most tax efficient way.

While dealing with the tax man can be a daunting prospect for business owners, it’s essential that you remain in contact with HMRC at all times.  Failure to comply with HMRC will lead to penalty charges and interest to pay – a bill which can cripple a small business that is not prepared for it.  If your business is struggling to keep on top of your tax bill, then you should contact HMRC and arrange a manageable and realistic payment schedule.

HMRC uses the media to inform self-employed people about their tax obligations with campaigns that emphasise that the self-employed need to comply with the law and complete any forms within the deadlines given.  This is publicised on TV, radio, newspapers, the internet and via direct mail.  HMRC has set up a hotline that can be used to report anybody not registered as self-employed or evading tax payments.

We’re facing times of economic uncertainty following the Brexit vote in June, so maximising revenue is essential for SMEs right now.  Make sure that you claim all expenses, allowances and tax reliefs for which you may be eligible.  Claiming for expenditure and allowances reduces the amount of taxable profit which reduces your overall tax bill.

If your profits have dropped over the last year then you should get in touch with HMRC to arrange for payments on account to be adjusted in accordance with this.  You should be aware, however, that if you’ve reduced payments on account and your profits increase you may be faced with a penalty charge.  Research shows that many businesses don’t claim back all of the expenses to which they are entitled which technically puts them at a competitive disadvantage.

You’ll need to register VAT if your turnover reaches a specified annual amount.  VAT is a complex issue and some companies find it advantageous to register for VAT on a voluntary basis – you should take professional advice when making this decision.  You may decide to register for the VAT Cash Accounting Scheme which will mean that you only pay VAT on the amount of cash paid by clients – this can be beneficial for companies which have more credit sales than cash-based sales.

When looking for areas where you can legitimately reduce your business tax liabilities, look at your company payment structure.  A low salary is required to ensure a certain level of National Insurance contribution to attract state benefits.