Tax Planning Strategies for Small Business Owners

The Financial Impact of the Autumn Budget 2024 on Small Businesses

The Autumn Budget didn’t pose any changes to corporation tax, meaning it will remain at 25% for companies with profits over £250,000. However, other changes in the Budget could have an impact on your finances, depending on your size.

Employer National Insurance Contributions

From April 2025, employer NI contributions will rise from 13.8% to 15%. At the same time, the secondary threshold will be lowered from £9,100 to £5,000. These two changes are expected to generate £25bn for the government, making up the majority of their £40bn target.

For some businesses, this could result in changes to financial structuring and pay reviews, as a 1.2% increase across a large number of employees could make a major impact. However, due to changes to the employment allowance, small businesses are less likely to be affected.

Employment Allowance Increase

Alongside the changes to National Insurance, employment allowance will also be increased from £5,000 to £10,500 – over twice the original amount. This sizeable increase means that while NI contributions from employers will be going up, many small businesses won’t see any impact at all.

In the Budget, Rachel Reeves stated that that 865,000 employers wouldn’t pay any NI at all, while over a million would be paying the same amount or less. A small business with 4 full time workers on living wage wouldn’t have to commit any revenue towards NI contributions as it would all be covered by the employment allowance.

Even for larger businesses, this increase may somewhat soften the impact of the NI changes, although big companies may still find they need to review their finances.

Find out more about Autumn Budget in our full article >

How to Leverage Tax Deductions and Advantages

Depending on your business type, there are lots of different ways you can maximise the tax efficiency of your business income. For incorporated small businesses acting as limited companies, these include:

• Business rates relief
• Creative industry tax relief
• VAT
• Capital allowances
• R&D tax relief
• Corporation tax relief
• Goodwill and relevant assets
• Deductions
• Charity donations

You can find the full list, along with details for each type, on the government website. Alongside this list, there is a number of other ways you can take advantage of existing incentives and opportunities.

Legitimate Business Expenses

One way to keep taxes down is through your business expenses. These deduct the expenses you and your employees pay from your profits before tax is paid, meaning you don’t waste money unnecessarily. It’s important to be aware of what is a valid business expense versus what isn’t, and this also changes depending on the type of business you’re running. Consulting a financial advisor can help you understand your specific circumstances.

Offsetting Profits and Losses

Another factor to consider is the losses you make in a year. These can provide tax relief, being deducted from your profits to provide a more representative interpretation of your actual turnover. Ensuring your books are kept accurately and loss factors are taken into account will help you legally cut down on the amount of tax you pay.

Planning for Future Tax Obligations

Alongside leveraging the aforementioned tax deductions and strategies, you can also plan ahead for any future tax obligations – either for the current year, or years to come. Here are a handful of methods to consider:

Managing Cash Flow

The most obvious way to prepare for future taxes is to properly manage your cash flow. Small businesses often struggle with keeping money on hand, as it can be better served being spent in order to reap much larger rewards down the line.

Depending on when money is coming in and going out, you could end up with periods of time where you don’t have money on hand for your expenses. For normal expenditure, this is one thing, but as the tax year comes to a close, you need to have enough money to properly pay your taxes. You might find that other businesses you work with delay their invoices around this time, making it harder to recoup the money if you haven’t planned ahead.

Accurately Recording Profits and Losses

Another way to prepare for your taxes is via your book keeping. If you keep an accurate record of what you spend and what you gain, you can be sure you’re paying the right amount of tax when it comes to it. This can help you avoid any potential complications, while even giving the possibility of reduced tax payments due to the tax relief from your losses.

Spending on Assets

Ever heard of the phrase ‘spend money to make money’? With taxes, this still applies. Buying assets for your business such as IT devices can help cut down on costs by limiting the amount of tax you’re spending on the money you make, reinvesting it into the business. These assets could be essential for running and improving your business, which means you can see operational improvements by following this strategy as well!