Tax and your business
Make the best use of trading losses. A loss made by a company can be set against profits of the previous 12 months, but only after making a current-year claim first. A loss made by an unincorporated business can be claimed against total income for the year of the loss and/or the previous year. A tax rebate will be available where a loss is carried back. As noted above, the amount of the loss used in this way could be restricted.
Switch to the flat rate VAT scheme for small businesses if your business has few costs and overheads. The VAT you pay is calculated by multiplying your gross sales by a flat rate determined by the business sector you work in. Purchases are ignored, so the scheme is very simple to use. However, your turnover excluding VAT must be less than £150,000 a year and there are complications if you let property in the same name that you trade under. When you use the flat rate VAT scheme in your first year of VAT registration, the applicable flat rate is reduced by a further 1% for that year, so the savings are even greater.
Incorporation can still be worthwhile?. Based on current personal and corporation tax rates, a business with profits of £40,000 can save tax and NICs of some £3,000 if operated through a company, compared to operating as a sole trader, provided you extract most of your earnings as dividends. Furthermore, corporation tax rates will continue to fall over the next two years – with an expected single unified rate of 20% this year.
Take advantage of the increased individual savings account (ISA) investment limits and generate tax-free income and capital gains. The maximum annual amount which can be invested in an ISA is now £15,000 (2014/15). Your annual allowance can be used in either a cash ISA, a stocks and shares ISA, or any combination of the two. Transferring funds into an ISA early in the tax year will maximise the amount of tax-free income arising. Be warned that you can only contribute to one cash ISA and/or one stocks and shares ISA in each tax year. As there are many ISAs on the market, it is worth shopping around to find the best deal, taking account of the rates of return and fees charged.
Think about how you should start your business – as a sole trader, partnership or limited company. Companies still have tax advantages, but generally only when the business has started to make a profit. With a new venture, you might expect to make losses in the early years. As a sole trader or partnership, your initial losses can be carried back to set against your income in the three years before you started the business. The use of losses may be restricted depending on the size of the losses and how much income you have.
Consider the support we can provide you to run your business efficiently, make the most of these tax saving tips available to you and safe money. As very experienced chartered accountants, we can do your end accounts and tax return, as well as to be your bookkeeper, tax advisor, financial advisor and legal advisor. Taking on our services will of course impact your bottom line in the short-term but could pay dividends to you and your company in the long-term. Book a free consultation to find out more on: 0203 226 0940
IMPORTANT DISCLAIMER: Whilst every care is taken to ensure that this information is correct, accurate and up-to-date, please note that MG Contractor Accountants does not accept any responsibility for any losses that may be incurred by either acting on the advice provided or by not acting on the advice provided. We will only accept responsibility where we have been engaged to act for specific services. It is important to note that each case depends on its unique facts, and you are strongly urged to obtain independent relevant advice.