The end of the financial year is a time for small business owners to reflect on the things they have achieved over the previous year, what has gone well, and anything that perhaps didn't play out quite as expected.
It’s also a time for some forward thinking, to ensure that the next financial year runs as smoothly as possible. There are various ways businesses can reduce their tax liability and increase their profits. Here are a few areas to pay attention to as you wind up the year:
1. Assets and equipment
Leaving tax planning until the new financial year might be too late, so start thinking about it before your year-end. If you're thinking of investments such as buying new assets, equipment, vehicles or investing in renovations, it's essential to consider the tax implications. If you’re buying assets for your business, it’s best to consider doing it before year-end, to reduce profit and therefore your tax bill.
You could also consider incurred expenses and any future ones, such as marketing costs, maintenance, and training.
2. Pensions
All employers must provide a workplace pension scheme, automatically enrolling employees and making contributions if the employee meets the criteria, which include earning at least £10,000 a year and being aged between 22 and the state pension age.
You can choose to offer employees a defined contribution scheme (where the employer pays a certain amount into the pension) or a defined benefit scheme, where the company is responsible for providing a certain amount of income following retirement.
Making contributions to a pension scheme can provide corporation tax savings for employers, so making sure that you know how much you are contributing for each employee in advance of your year-end will ensure you qualify for the correct tax relief.
3. Research and development
The government offers generous tax relief on R&D expenditure, meaning that if you have spent money on developing a new product or service, in any industry,you may be able to make a claim. We work with our clients to give them direction and support in the most effective way to apply for R&D tax credit.
If you don't understand how to go about it, take the opportunity to talk to an expert tax accountant – you might be surprised at the types of projects that are eligible.
4. Bonuses and dividends
Your current financial standing and your business growth will significantly impact whether you choose to pay bonuses or dividends in the next year. Your shareholders must understand how much money they can expect. As an employer,work with a local accountant to ensure you're following the rules and have a plan for your future.
5. Review any director’s loans
If you have a director's loan account with the company and haven't reviewed it within two years, this could result in a financial penalty. Make sure to do this as soon as possible.
6. Is your accounting system up to date?
Relying on a manual accounting system makes year-end planning very difficult, so if you don't have a digital accounting system in place, the year-end is an excellent time to shop for available options.
You can either opt for a cloud-based option or purchase the software. Talking to an expert will broaden your perspective and provide quick solutions for your digital needs. You'll also understand the cost implications and benefits.
7. Consideration for exit strategies
Suppose you are thinking of leaving your company. In that case, it's essential to ensure that all exit strategies are carefully thought out with an accountant because of the tax implications. You can also consider downsizing your business if you feel your role is unnecessary for the company's future.
Also,if you feel like you're paying too much tax and you're ready to reduce your tax bill, don't hesitate to reach out for a free consultation with our team of experts. Now is also an excellent time to talk about your concerns, understand more about tax rules, and plan your next financial year.
The above are general suggestions, but our Blue Rocket Accounting Client Managers can offer personalised solutions depending on your specific business needs. Get in touch on 01322 555 442 or email happytohelp@bluerocketaccounting.com for a no obligation chat with our team.
Blue Rocket Accounting provides tailored accounting and bookkeeping support to businesses across Kent including Dartford, Bexley, Sidcup and Maidstone, helping to put them on course to reach their full potential.
