Tax season is looming; we’re also going through a bit of a strange time when businesses are finding it hard. So make sure that you don’t fall into these tax traps and kill your profitability.
Watch my video or read below to find out more.
Not Taking Advantage of Pension Schemes
If you’ve got excess profits within your business that you’re not looking to directly invest. This may not be as applicable to a start-up, or a really fast-scaling business, but pensions are a massive opportunity.
When you go above £50,000 as a business owner, you jump up in tax by another 25% from what you were paying before. Also, if you go above £100,000, you even get penalised even more, so it can be really crippling when you realise the amount of tax that you’re paying above £100,000.
With a pension, you’ve got the opportunity to save on tax. Corporation tax, if you earn profits above £200,000 is going up to 25%. You’ve got the option to put money into a pension, and the money you paid into a pension within your financial year, reduces your tax to zero for the amount of pension you contributed.
Secondly, you’re not paying any dividend tax on it as well. So you’ve got an opportunity to put a big sum of money into a pot and allow that to grow.
If you’re a high-rate taxpayer, you’re saving 33% dividend tax; you’re saving 19 or 25 % corporation tax on entry. Also, you have the benefit of that money to grow and grow and grow.
So weird, the personal tax limits are higher if you’re above £50,000, definitely above £100,000, paying your money from a company into a pension has never been more attractive from a tax saving point of view.
So how much excess profits have you got within your business that you could then put into a pension that can save for your future and save a lot of tax?
Claiming Tax Deductions on Things You Can't Prove
The classic is that you don’t have your receipt and can’t claim back the VAT. If you’re claiming the stuff that is just on willy-nilly, you’ve lost it, you haven’t got the right information, or what you’re doing is just downright illegal; this is a trap a lot of small business owners can fall into. They may have an advisor who’s contacted them out of the blue, and that sign is a tax boutique, but that does not mean that they’re right.
Also, you must mention Dave down the pub, so you have to make sure that the advice that you’re getting from Dave does not lead you into problems. Because if you can’t prove stuff, and you’re investigated, you are going to get yourself into massive problems. And you won’t just pay back the tax that you should have paid in the first place; there will be penalties and interest. And if you’ve done this knowingly, the penalties on this can be up to 200%!
Not Getting an Advisor
Not all advisors can help you with everything. But ultimately, you want to have a really good handle on your business tax, income tax, and CGT. And you want a great handle on your inheritance tax.
I understand that a 35 or 40-year-old entrepreneur will not be excited about inheritance tax because they’re just not there yet. But ultimately, you want an advisor who can do everything, but you want to make sure that the advice you’ve got is relevant to the things you’re doing now.
So, if you’re growing your business and building it, you want to ensure that you’ve got a really strong business advisor.
Also, if you’re building assets, and we’ve got a lot of customers, including myself, that are really into property, who wants to pay excess capital gains tax? Nobody, we all want to pay the fair amount of tax that we should, but no one wants to pay more than they need to make sure that all the assets that you’re building on your personal balance sheet get you there so you’ve got the wonderful retirement, live that life exactly what you need.
But also when you’re transferring this over to children. You are not getting a wallet again with another 40% inheritance tax. If you can avoid it, and it’s legal.
So, these are my three worst tax mistakes for small businesses. I hope you don’t fall into any of the free. But if you do, and you could help have a chat, please click my link below. My Calendly link is there to book a discovery call. We can chat for up to 30 minutes. I promise I’ll take any questions you’ve got in an hour. There will be no pushy sales pitch.
