Grow your small business with business tax tips

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July 28, 2014

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Small Businesses

The issues small businesses encounter when they start up can actually present good opportunities to reduce tax liabilities. But what are these opportunities? James McBrearty ATT(Fellow), founder of taxhelp.uk.com®,shares three business tax tips for those looking to grow a small business.

Make those miles go further

Travel costs can be a big expense for a small business, particularly in the early years with more travelling to build up initial clients. It is important to make sure that you are claiming the full amount of entitled relief for these expenses.

For a small business (that isn’t VAT registered) there are two ways to claim tax relief for motoring expenses; either the business percentage of total costs or a fixed mileage rate.

Running a modern fuel efficient car you could find that your actual costs per mile work out less than the official mileage rate (currently 45p/mile on the first 10,000 miles and 25p/mile thereafter). By choosing this method you in effect generate additional profit for the business from your business mileage.

The other option (and the one you have to choose when you grow and become VAT registered) is the business percentage method. This involves working out the total of all expenses for running the vehicle, then taking the percentage of business miles travelled in the year against total miles. The choice of vehicle and how this is paid for can have a significant effect on your tax position, as there are different deductions available depending on your choices.

It is important to record the details of all business trips, as it’s surprising how short trips can amount to a tax saving. Many people use an app or keep a diary in their car to record this, and there are GPS units available that will log every journey for you.

You can also claim for business mileage on a bicycle (or motorbike); although it is at a lower fixed mileage rate.

Home from home 

An increasing number of people do not require business premises and instead choose to operate from home. There are many benefits to this, such as saving on travelling, and you can claim tax relief for working from home as well.

As for business mileage there is a choice of two methods – either a fixed HMRC allowance or a calculation based on business usage.

The fixed rate allowance has several bands depending on how many hours a week you work from home, while the business usage method calculates the amount of time spent working out of the week and multiplies this by what percentage of floor area you use.

DIY doesn’t always pay off

Do you think you will save money by doing everything yourself? Unfortunately there is no tax relief for the value of your own time, and this tax loss can unfortunately be compounded into lost business as well.

If you hired a professional to work on your website then that would be a business expense that would qualify for tax relief. As a result the net cost to you could be reduced by 29% or more (depending on your tax rate – remember to include national insurance as well as the income tax), which is a significant discount.

If you did this work yourself, not being a web designer, the end result would not have the same quality which could cost you business. If it took you a week to do the work yourself, then that is also a week of potential earnings that have been lost too. You could find the benefits of professional help outweigh the ‘savings’ by trying to do everything yourself. 

James McBrearty ATT (Fellow) is the founder of taxhelp.uk.com®. You can find more tax tips at www.taxhelp.uk.com