Unless you make a living as a professional pirate, taxes are unavoidable. While you may loathe them with a passion, they are here to stay, so it’s worth knowing how to live with them on a year-to-year basis. Although you may not legally be able to dodge taxes, there are a few ways you can reduce their effects. A Milton Keynes accountant has all the expertise to make that end-of-year tax return far less taxing.
Sometimes, the problem can be structural. If you run a business that turns a profit over the basic income tax rate, you might be better off incorporating as a limited company. While you will be required to pay corporation tax at 20%, proprietors of a limited company are able to take a modest wage on top of tax-reduced dividends. This enables you to save considerably on income tax and national insurance contributions.
Of course, you will need to prove to HMRC that your business is legitimate. If you set up a limited company to avoid paying tax, but continue to operate as a sole trader, then you could find yourself in hot financial water. If you are considering upgrading your small business status, a Milton Keynes accountant can take you through the process one step at a time.
A capital allowance can be claimed on any business asset — from plant and machinery to crockery and cutlery. By deducting the cost of these items from the overall profit stated on their tax return, Milton Keynes businesses can reduce the overall amount they have to pay. Many small businesses don’t take the time to add up each individual purchase they make, resulting in a nationwide loss of millions of pounds of tax relief each year.
If you operate as a sole trader, claiming capital allowances is easy. You simply need to claim for every asset you purchase, in order to retrieve the tax you pay on it. For limited companies, things are a little different, but the overall effect remains the same. Most plants and machinery will qualify for Annual Investment Allowance (AIA), which enables you to claim deductions of up to £200,000 in every twelve-month accounting period. A small business accountant in Milton Keynes can keep on top of all your purchases and ensure they are omitted from your final profit statement.
Chances are there’ll come a time when you find yourself short of skilled workers. In the lifespan of a small business, this is just an unfortunate actuality. But how should you fill the void? Training up existing employees can be a lengthy process and recruiting new ones can be costly. In certain circumstances, hiring independent contractors over new employees could be the perfect solution.
Contractors will do the work a salaried employee would do, minus the inconvenient issue of paying PAYE tax. Of course, this is not a ‘one-size fits all’ strategy. You can’t, for example, dismiss all your employees and rehire them as self-employed workers. Not only is this inefficient; it is also highly illegal. Known as ‘disguised employees’, a workforce contracted in this way will only end in tears and tax penalties. Make sure you are only hiring contractors for short-term jobs that need immediate attention. If you are left in any doubt over your legal limitations, ask a small business accountant in Milton Keynes to verify your decisions.