Nobody wants to pay more tax than they need to. For SMEs, paying the right amount of tax has become more important than ever.
A recent analysis of the UK’s tax gap shows that small businesses continue to account for a significant proportion of underpaid tax, much of which stems from errors, misunderstandings and poor record keeping rather than deliberate non-compliance.
With HMRC increasing its focus on closing the gap, getting your tax affairs right can save money while reducing risk.
Failing to claim all allowable expenses
One of the most common issues is businesses not claiming every expense they are entitled to.
Many SMEs are diligent about recording high costs such as rent, payroll and utilities, but smaller expenses often slip through the cracks.
Professional subscriptions, business mileage, software subscriptions, staff training, business insurance and certain home working costs can all be eligible for tax relief.
Over the course of a year, these missed expenses can add up to a substantial amount.
If costs are incurred wholly and exclusively for business purposes, they should be reviewed carefully before your accounts are finalised. Good bookkeeping throughout the year makes this process much easier and helps ensure nothing is overlooked.
Overlooking capital allowances
Businesses regularly invest in equipment to support growth, but many fail to maximise the tax relief available.
Computers, office furniture, machinery and other qualifying assets may be eligible for capital allowances, allowing businesses to reduce their taxable profits.
Too often, purchases are viewed simply as costs of doing business rather than opportunities to improve tax efficiency.
Before making significant investments, it is worth seeking advice to understand what reliefs may be available and when those claims can be made.
Not reviewing director remuneration
For owner-managed businesses, the way directors are paid can have a significant impact on the overall tax bill.
A combination of salary, dividends and pension contributions will often provide a more tax-efficient outcome than relying on one method alone.
However, tax rules and thresholds change regularly, meaning a strategy that worked well a few years ago may no longer be the most effective approach.
Reviewing remuneration annually can help ensure that directors are extracting profits from the business in the most tax-efficient way possible while remaining fully compliant.
Leaving tax planning until the end of the year
Perhaps the biggest mistake SMEs make is treating tax as a year-end exercise.
The discussion around the UK’s growing tax gap highlights that many compliance issues arise because business owners are simply too busy running their businesses to keep up with changing rules and requirements.
Small errors can become costly if they are not identified early.
The businesses that achieve the best outcomes tend to review their finances throughout the year rather than waiting until accounts preparation begins.
This creates opportunities to identify reliefs, plan investments and avoid unexpected tax liabilities.
How can we help?
With an HMRC crackdown on SME taxes imminent, you need to start preparing early, while making the most of your tax-saving opportunities.
Our talented accountants are here to help you make the most of your tax-saving opportunities to ensure that you do not pay a penny more in taxes than you have to, while also ensuring that you are paying your taxes correctly.
Nobody wants to pay more tax than they have to. Get in touch with our team today for support with tax-saving opportunities.
