Tax planning for small businesses is not always straight-forward and without the right preparation many companies can find themselves missing deadlines, incurring penalty charges or overpaying what they owe.

With the Tax deadline fast approaching, now is the time for businesses to ensure they’re prepared to file their returns. So we took a look at some of the things you can do to prepare your business for the upcoming tax period.

1 – Hire a good accountant.

A good accountant will provide you with the advice and options to ensure you are minimising the amount you pay in tax while also helping to protect the financial health of your business.

An accountant will also be able to highlight where to reduce costs, ensure your bookkeeping is kept in good shape and advise on any deadlines, ensuring you don’t incur any costly penalties.

They will also ensure your taxes are filed on time and if you’re ever audited, you’re covered there too, giving you the piece of mind necessary to focus on your business.

2 – Keep up to date records.

It’s vital you keep on top of all receipts and expenditure so that you can:

  • Work out your profit or loss for your tax return.
  • Show them to HM Revenue and Customs (HMRC) if asked.

If you aren’t able to prove expenditure to HMRC then you won’t be able to claim it back, potentially leading to a higher tax bill.


3 – Classify your business correctly

An important step for any small business is to identify the correct tax classification for your company, failing to do so could result in over-paying your taxes.

  • Sole Proprietorship/Partnership – All revenues and debts fall on the owners’ shoulders. Filing tax returns is simpler than other classifications but the owners and the business are considered one entity and personal property could be used to settle debts.
  • C/S Corporation – Corporations enjoy much lower tax rates, however they are effectively taxed twice. Once on income and again on the shareholders’ dividends. One way around this is to form an ‘S’ corporation which itself isn’t taxed but the shareholders are instead taxed on the companies’ profits and losses.
  • Limited Liability Corporation – In an LLC all profits and losses are passed over to the owners, however you will not benefit from a corporate tax rate and will instead be taxed at a much higher personal rate.



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4 – Invest profits in your business.

One way to reduce your tax bill is to invest your profits back into the business.

Using profits to purchase vehicles, computers or other costly items qualifies for the annual investment allowance and you will not pay any tax on them.

Companies can also make pension contributions on behalf of their staff or pay towards childcare, saving on corporation tax and NI by doing so.

As mentioned above, speak to your accountant about how best to invest profits back into your business in order to save on your tax bill.


5 – Be organised.

It goes without saying that tax planning should be undertaken ahead of time allowing you plenty of breathing space to make decisions and assess business performance before it’s too late.

Ensure you have a bookkeeping system in place that allows you to constantly review your tax position and make decisions upfront, giving yourself the flexibility to respond to any issues as and when they arise.