Skip to content Finding your way through the maze of tax deductions, credits, and exemptions at your disposal to lower your overall tax burden may be intimidating. In addition, finding out what options are available and what benefits you could be eligible for as a small company owner can be challenging.
Financial planning for newly established companies
The experience of beginning one’s own company is both exhilarating and challenging. You will be required to make various choices during the beginning stages of your business that may prove to be essential to its continued growth and long-term prosperity. You will need to consider multiple factors, including the sort of company you want to run, the potential for profits, how you will pay yourself, and the pace at which the firm will expand. At Tax Accountant, we can give you professional guidance that is individualised to meet your specific needs to assist you in avoiding the most frequent errors and ensuring that your new business is as tax-efficient as possible.
Making a Claim for Expenses
At Tax Accountant, it is our responsibility to assist you in maximising your utilisation of all of the deductions, credits, and reliefs available to you. Because you will be subject to tax on your taxable earnings, one of the most important aspects of tax preparation is to make sure that you claim all of your deductible costs, the majority of which will already be documented in your financial records.
Costs that count toward qualifying
If you are self-employed and run your company from your residence, you may be eligible for tax relief on some of the costs associated with maintaining your property, such as insurance, maintenance, and utility bills. In addition, when you are working away from your primary place of business, you may also be able to claim the cost of travel and lodging. As a result, you should maintain proper business documents, such as a log of business travels, so that you may take advantage of this potential benefit. These documents may also be sought by HMRC, which is another reason to keep them, in addition to ensuring that your finances are correct.
Software That Is Suitable For Use
Because of the implementation of Making Tax Digital for VAT, having an adequate accounting software package is necessary. This will not only help you maintain records succinctly and efficiently, but it will also allow you to fulfil your requirements for Making Tax Digital and VAT. Furthermore, we can guide you on the most appropriate software to satisfy your company’s requirements.
Voluntary Cash Basis
You might also want to consider the voluntary cash basis for calculating taxable income for small businesses. This method allows eligible self-employed individuals and partnerships to compute their profits based on the cash that moves through their business. If your company qualifies for this method, you might consider it. For example, if a company has yearly revenues of up to £150,000, it is qualified for this programme, and it will allow the company to keep using the cash foundation of accounting until its annual receipts exceed $300,000. But, again, if you meet the requirements, we need to have a detailed conversation with you about this topic.
Capital allowances
The deduction that we are allowed to claim on your behalf for capital expenditures, such as the purchase of company equipment, is referred to as a “capital allowance,” and this word is used in place of the term “depreciation.”
Allowance for Investment Each Year (AIA)
Most companies are eligible to claim an Annual Investment Allowance (AIA) of one hundred per cent on the part of the money they spend on most kinds of equipment and machinery (except cars). The AIA applies to companies of any size and the vast majority of company arrangements; however, there are measures prohibiting repeated claims from being filed.
The increase in the AIA from £200,000 to £1 million is effective for all expenditures made from 1st January 2019 through 31st December 2020. However, there is a potential for more complicated computations to be necessary for accounting periods that span both of these dates. Because of this, I prioritise purchasing equipment and plant properly so that I may get the most out of the rise.
It is perfectly appropriate for companies to set their allowance against spending that qualifies for a lesser rate of allowances since this is one of the many ways they may allocate their AIA. Businesses are free to allocate their AIA in any manner they see fit (such as integral features).
Increased Deductions for Capital Expenditures (ECAs)
A 100% first-year allowance is also available for new energy-saving or environmentally friendly equipment, in addition to the AIA allowance that is already in place. Companies who suffer losses due to ECAs are the only ones that have the option of deciding how much of that loss they want to carry forward and how much of that loss they want to give up in exchange for a cash payment (tax credit is payable at 19%, but there are restrictions).
There is a separate Enhanced Capital Allownces plan available for new electric and low carbon dioxide (CO2) emission automobiles (up to 50g/km from 1st April 2018). For new zero-emissions goods trucks (up to 31st March 2021 (corporates) or 5th April 2021 (others)), there is also a separate ECA scheme. They are still eligible for the first-year allowance of 100% but do not meet the requirements to qualify for the payable ECA regime.
Putting in Writing the Allowance (WDA)
Any spending that is not covered by the AIA (or ECAs) is transferred to either the main rate pool or the special rate pool, where it is subject to WDA at the appropriate rate: 18% for the main rate pool and 6% for the special rate pool in 2019/20 (the special rate pool WDA was 8% in 2018/19). The price cut is effective as of 1st April 2019 (for corporations) and 6th April 2019, respectively (others). Once again, accounting periods that span these dates may need complicated computations.
The special rate pool is applicable to automobiles with greater emissions, assets with long functional life, and essential components of structures, more specifically:
- Electrical infrastructures (including lighting systems)
- Systems for both hot and cold water
- Heating systems for either space or water, etc.
- The use of elevators and escalators
- External solar shading
The standard rate applies to the vast majority of other plants and equipment, which includes some autos (see below).
Companies can submit a claim for a small pool allowance with a maximum value of up to one thousand pounds if their unrelieved expenditure in the main pool or the unique rate pool is less than one thousand pounds.
Bills not paid and work not compensated for
This tutorial explains how small companies may calculate their profits using the cash basis so that their earnings are proportional to the amount of cash that flows through the company. However, other businesses, including all corporations, are required by the tax system to include in their turnover for the year the value of unfinished work, unpaid bills (debtors), and work that has been completed but has not yet been billed, all of which are accurate as of the end of the tax year. This is a feature of the tax system.
We must converse with you about precisely what has to be recognised and the foundation of the value. It is crucial to your cash flow that you keep track of your debtors and any unbilled services.
Making preparations for the next year
Instead of waiting until the conclusion of the tax or financial year to prepare for taxes and finances, you should get started on this process well before the end of your company year.
The following are some items to take into consideration:
Consider the implications for your tax situation and financial performance that bringing forward expenditures into the current fiscal year, as opposed to postponing them until the following year, may have.
Increasing your contributions to your pension plan or conducting a review of your existing pension arrangements
What can we do to assist?
These are just a few of the highlights that can be found in our comprehensive guide, which can be downloaded from this page. Call us at 0800 135 7323 to set up a free, no-obligation discussion to explore your possibilities for minimising your tax liability.