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There are a number of ways to reduce your tax bill but each method should be given careful consideration as to whether it is the right thing to do for the business or not. It is often the case that some business owners will focus too heavily on reducing their tax bill to the detriment of their profitability.

These methods are not to be treated as advice but rather potential options. Advice should be based on your individual circumstances and should be discussed with your advisor.

Capital gains tax (CGT) allowance can be utilised in a number of ways such as realising a gain gradually over a number of tax years to utilise the annual allowance available. It may also be beneficial for a married couple to own assets jointly so that once sold, twice the CGT allowance is utilised.

Donating to charity can reduce your tax liability in certain circumstances.Checking your tax code can reduce your tax bill if it is incorrect. A recent study showed that over a third of tax codes in the UK are incorrect. This is only applicable if you do not complete a Self-Assessment tax return.

Utilise the personal allowance of your spouse. If you have a business and your spouse has not utilised their tax free personal allowance then you can hire him/her to complete some work for your business. This work would be tax free for your spouse and will also be a wage expense to the business meaning that the profit would be reduced and in turn the tax liability.  

Paying into a pension scheme in certain circumstances contributions can significantly reduce your tax bill. This applies to personal pensions and company pensions.

ISAs can be a good way to reduce the amount of tax that you pay. Certain amounts can be invested into an ISA which is usually tax free.

Claiming all expenses you are entitled to claim will result in your tax bill being as low as possible. If you think you have incurred costs that have not been included in your bookkeeping records then you should speak to your accountant about including them.

Energy saving incentives can be claimed if you rent a property and would like to make it more energy efficient with the installations of various insulations.

Incorporating a limited company can be a very effective way to reduce your liability to HMRC. If you are a sole trader or have a partnership with reasonable profits then it can be well worth incorporating a limited company in order to save class 2 and class 4 national insurance. It can also be very beneficial to value the business and sell the goodwill (customer base) to the new limited company.

Ensuring you are on the best VAT scheme can be very important for tax savings. It can often be beneficial to switch from the flat rate scheme to the standard rate scheme and vice versa to cut down on the amount of VAT you pay to HMRC.

Claiming annual investment allowance on purchases of capital expenditure can be a great way to reduce tax in the short term, if of course it is the right time for a business to make the purchases.

Eco-friendly company cars can be taxed at a much lower rate than less fuel efficient cars. For zero emission cars the tax liability is actually nil.

Inheritance tax exemptions such as gifting cash or assets up to the value of £3,000 per year without tax implications can reduce tax payable to HMRC

There are many other ways that tax can be reduced, please contact your dedicated accountant for further details.

About The Author

Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

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