It’s that time of year again… The January tax deadline is fast approaching. Businesses all over the UK are scrambling to get their accounts in order and tax returns submitted before the deadline hits! Failing to do so before the deadline can result in penalty charges, overpayment, and generally just a lot of complications.
But fear not! We’ve put together this guide to help you understand how to navigate through the tricky January tax season. We will explore the levers you have available to reduce your overall tax burden, and also discuss the use of a business loan to help maintain a strong cash flow position.
But, first things first, prepare in the right way
As the old “5 P’s” saying goes: Prior Preparation Prevents Poor Performance. This is true for many areas of business, and your January tax returns are no exception. Getting through the tax period in a calm, strategic manner is only possible with the right preparation being taken beforehand.
No matter the size of your business, hire a great accountant
The impact of an ok accountant vs a great account on your business can be stark. Apart from organising and advising your business safely through the various financial hoops that you’ll inevitably have to jump through over the course of the year, a great accountant will also be able to help minimise your tax burden and protect your cash flow.
Your accountant will be able to ensure that everything is organised, all records are kept that need to be, and everything is submitted on time.
Many small businesses and sole traders understandably try to cut out accounting costs wherever possible. It’s easy to view an accounting expense as something to try and avoid, but that misses a key point: A good accountant should be saving you money at the same time.
By helping you reduce your tax payments, you might just find that taking on board an accountant actually has a net positive effect on your finances.
For more tips to get prepared for the tax deadline check out our 5 tips for getting through the tax period.
Reduce your tax bill
Ok, so far we’ve touched on the importance of getting organised and prepared for the January tax deadline. Now let’s take it a step further, and explore some smart ways that you can reduce your January tax bill overall.
Every business wants to cut down the tax they have to pay. The question is, how can you do it?
The short answer is by offsetting as many costs against your tax bill as you reasonably can.
This sounds simple, but many business owners are surprised to learn just how many expenses they can claim against their corporation tax. From childcare to home Wi-Fi, there’s a range of costs that can be offset. Let’s explore some of them now.
1 – Using your home as an office?
If you work from part of your house, be it an office room, a bedroom desk, or even on the sofa in the living room, you can claim some of your household expenses against your tax bill.
You can do this because you’re using part of your property for business purposes, and so it’s reasonable that you should be able to attribute a certain amount of the household costs to your business. This is possible for both home owners and renters alike.
Home Wi-Fi, mortgage or rent payments, heating & water, and more! Essentially anything that you are using while working should be considered.
The amount that you can claim, and on which expenses, depends on how much time you spend working from home and how you use the space.
Your accountant will be able to work out with you exactly which costs, and how much of each costs, you can claim against.
To give you an idea, if you are working from home full time then you can work it out based on space. So, if you have 5 rooms in your house and 1 of them is your office, you could reasonably look to claim ⅕ of your household bills against your business.
2 – Food & Drink
This can be a bit more difficult to claim than a household expense, but some food and drink can be used to offset your corporate taxes.
You do have to be careful with this, though, as it can be argued that you have to eat regardless of whether you’re working or not! Hence, you’re unlikely to get away with claiming against your weekly food shop!
However, if you’re away from your usual work space for business reasons, for example a conference out of town where there is no food on offer, then you could reasonably look to put the food and drink that you consume on the trip as a business expense.
3 – Travel costs
Leading on nicely from food and drink, we have business travel expenses.
Let’s say the business conference that you went to required some travel costs. Whether it’s petrol, plane tickets or car hire, you could look to claim this against your January tax bill.
This also works for more day to day business travel. For example if you take a bus or train to work everyday, this can be claimed as a business expense, too.
4 – Equipment
If you own a business, you have up to £200,000 per year that you can spend on equipment for the business and claim against your tax bill.
If you’re facing a large tax bill and you’re in a healthy cash flow position, think about upgrading your business equipment. New computers for everyone!
If you make £200,000 profit, but have £50,000 equipment spending on the books, then you’re only liable to pay tax on £150,000.
5 – Corporate days & parties
Unsurprisingly, it’s now been proven that happy employees work harder for your business. So, treat your staff to annual corporate events, such as stellar Christmas parties, team building trips throughout the year, etc.
Other than the potential uplift in productivity, you can also use these annual staff events to claim against your tax bill (up to £150 per employee).
Finally, consider a business loan to get you through the tax season
Sometimes, despite all of your best efforts to plan ahead and reduce your tax bill as much as possible, you can still find yourself facing a pretty hefty tax bill.
If your cash flow is tight, you can consider taking out a business loan with a commercial finance broker, such as Acorn Business Finance.
Why take out a business loan?
If you aren’t able to pay your tax bill then you could end up having to enter into a full payment plan with HMRC or even face a penalty. A loan from Acorn Business Finance can help relieve you of this burden and ensure that HMRC are paid on time.
Business loans are by far the largest area of our business, and our personal service makes the whole process quick, clear and easy. We’ll work with you to come up with a bespoke solution that suits your business, and you’ll get a decision on the loan within 48-72 hours.
To learn more, visit our business loans page, or book a call with our team.
Conclusion
The January tax bill can become a costly burden for your business if you aren’t prepared.
However, if you prepare well in advance, work with your accountant to reduce your tax bill, and organise your documents, then you’ll at least be clear on what you owe and confident that it’s as low as possible. At this point, if your cash flow isn’t strong enough to make the full payment, then a business loan from Acorn Business Finance can be the solution to the problem.
