10 Simple Year-End Tax Planning Tips for Small Businesses

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Updated 15 March 2019

Year-end tax planning doesn’t have to be aggressive or involve dangerous tax avoidance schemes.

Here are my top 10 simple year-end tax planning tips for small businesses approaching approach year-end that will legally reduce your tax bill.

1. Bring Forward Capital Purchases

Businesses are entitled to claim Annual Investment Relief ‘AIA’ on tools and equipment of up to £200,000.

Basically, the AIA means the full amount of the capital purchase is tax allowable in the year it is bought, rather than using traditional capital allowances which spread the tax saving over a number of years.

If you are thinking about spending some money on capital purchases or assets in the future then, depending on your finances, you could bring this forward for a tax saving sooner rather than later.

2. Claim Cash Expenses

Business owners easily forget to claim for business expenses that they pay for in cash during the year – writing them off as small and insignificant. Believe me, these “small” amounts can mount up.

If you have a pile of receipts then make sure you go through them and make an expense claim.

Business-related cash expenses are often tax allowable, especially things like subsistence.

Claiming cash expenses is an easy year-end tax planning trick, that results in tax-free money for you and a tax saving for your business.

If you have a Limited Company but your Company is not in a position to repay you for your cash expenses, they can still be logged in your Directors Loan Account and repaid at a later date.

3. Claim Business Mileage

You are entitled to claim up to 45p per mile for the first 10,000 miles (25p thereafter) if you use your own car for business purposes. This is repayable to the business owner as well as being an allowable business expense.

Take a look back through your diary to see which clients you drove to and where they were. Don’t forget to claim your return journey, not just one way!

4. Claim Pre-Trading Expenses

If this is your first year of being in business, then you may be able to claim for things your bought before you started officially trading.

This is a commonly overlooked year-end tax planning trick, even by accountants. So make sure you make a note of any pre-trading expenses to discuss with your accountant.

Here are some examples of pre-trading expenses:

  • Stock
  • Subcriptions
  • Computer
  • Domain name
  • Email
  • Mobile phone
  • Website build

There are special VAT rules that allow you to claim back the VAT on pre-trading expenses.

5. Claim for Your Home Office Expenses

If you work from home then you can make a claim for using your home against your taxes.

You can choose to claim for your home office at a flat rate amount, without needing any receipts, or based on your actual spend.

6. Pay Yourself Tax Efficiently

Extracting money from your business in a tax-efficient way will reduce your tax bill and your businesses.

For Limited Company Owners you want to find the right balance between dividend and salary to maximise your tax savings.

You could also consider making a provision for bonuses in the current tax year to get tax relief sooner rather than later.

7. Pension Contributions

Opening a pension scheme is a commonly recommended year-end tax planning tip by accountants.

Only certain types of registered pensions schemes attract tax relief in Limited Companies or give you tax relief if you are self-employed.

If you have cash available, this can be a great tax-planning strategy to reduce your tax bill.

Just remember you only get tax relief on amounts you have actually paid into the scheme. So making a provision in your year-end accounts won’t work.

8. Pay Someone In Your Family

If you have a loved one who has supported you in your business but not been remunerated, then you could pay them a salary.

There’s an added tax saving too if they have personal allowance available.

9. Defer Income

Deferring income means that you can push out earnings from one tax year to the next one. That means your tax liability is also deferred to later years.

There are special rules around deferring income that you need to adhere to when year-end tax planning.

You can’t claim for deferred income if you have already delivered your product or service.

You can claim for deferred income if, for example, a customer pays you up front but you have not yet delivered on the project.

10. Charitable Donations

If you have a Limited Company, then charitable donations are tax deductible.

If you are self-employed, unfortunately, charitable donations are not an allowable business expense.

These year-end tax planning tips are ideal for small businesses.

But you should get professional advice to help you decide which tax planning strategies are right for you and also where your business is going in the future.