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Page 15 of 16
Tax and NI
14. Paying Less Tax
There are widely-used ways of paying less tax.
14.1
New businesses expecting to make a first-year loss can delay incorporation.
- This may be advantageous because the self-employed can offset the tax loss against previous years' employment income and receive a tax rebate (see 8). But being self-employed has other important implications, including unlimited liability.
14.2 If you are making profits and your cashflow is sound, it may be worth trying to reduce profit at the year end in order to cut your tax bill.
- Bring forward the purchase of assets that you will have to buy later anyway.
- Make full provision for specific bad debts.
14.3 Payments into a pension scheme are an efficient way of saving tax.
- But such payments will then be locked in. Weigh up the possibility that the cash will be needed in the business.
Handle with Care
Some expenses do not count. They cannot be deducted when calculating your profit figure, even though they may seem necessary and legitimate business costs. They include:
- Personal expenses, including living expenses, ordinary clothes, and travel to and from your regular place of work.
- Entertaining, including any food or drink bought for clients.
- Certain professional fees, such as the costs associated with forming a company and obtaining a lease.
- Depreciation. Instead of deducting an element for depreciation, you claim capital allowances (see 7).
- Fines, including parking tickets.
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Business Advice