Minimising My Tax as a Small Business Owner: A Case Study

Small business owners have an extraordinary list of responsibilities and tasks that they must fulfil and complete if they are to ensure that their venture is successful. Aside from the actual running of the business and the completion of all the work that entails, there is a huge variety of ‘behind the scenes’ tasks that can make or break a business. Tax is amongst the most important of these (see our article Understanding The Tax Your Business Will Have To Pay in this section).

If you're unsure what income and expenses you need to declare or what reliefs you can claim, you might find it useful to try our free Self Assessment Helper.

Inefficient tax management can easily destroy an otherwise viable company. Unless you budget well for your tax liabilities, and take steps to minimise your bills, it is perfectly conceivable that your organisation could have its cashflow constricted to such a point that it is no longer possible to operate your business.

Business managers have developed different methods by which they minimise their tax bills. This case study looks at the experiences of one small business owner operating in the media sector. A sole trader, this individual offered PR and communications consultancy services to clients in the entertainment industry.

"Tax accounting was a nightmare," she said. "I didn't go into business so that I could spend my days doing accounts. It's not what I am good at and it's not what I want to be doing."

Hiring an Accountant

To begin with, amongst the most important steps this individual took was to enlist the services of a Reputable Accountant with experience in small business tax. The individual pays the accountant a retainer, in exchange for which they are on hand to give advice as and when it is needed.

Perhaps the most fundamental aspect of this individual’s tax affairs is the means by which they pay themselves. This individual set up a limited company in order to benefit from the extra legal protection it grants. This also means, however, that rather than paying herself a salary, the business owner can take profits out of the company by way of a dividend. This means that, as their total income is below £35,000, they pay tax at a rate of just 10%.

Self Assessment Helper

Confused by self assessment? Tell us about your income and circumstances and get a clear guide to what you need to declare, what you can claim, and the key deadlines.

Try our Self Assessment Helper free, here on this site →

Your situation may be slightly different. ask a question below ↓ and our editorial team will reply with our advice.

Company Directorship

As the director of a limited company, the business owner has a number of added responsibilities. She is required to complete an annual company return, as well as her own Self Assessment. However, having supplied them with the relevant paperwork, her accountant puts the actual document together.

The business owner could not have fulfilled her responsibilities as a company director without the help of the accountant. "I simply had not idea how to complete a company return. In fact, I still don't."

Indeed, this paperwork is vitally important for the mitigation of the company’s tax liability, as the bulk of this collection of documents is made up of receipts. The business owner is aware that the vast majority of business expenses can be claimed back against her company profits, and can therefore be used to keep the tax bill down. This means she can offset the cost of her office and utilities, as well as travel to and from meetings with clients.

Finally, the business manager is confident that staying on top of her tax affairs is one of the key means by which she keeps her payments down. If she were to miss a payment or file her return late, she would immediately incur a fine large enough to wipe out a significant proportion of the savings made through efficient tax management.

"I pay my accountant a pretty hefty sum of money," she says. "But they have paid for themselves many times over already."

If you wish to keep your small business tax bill down, there is a wealth of information available elsewhere on this site. However, you may also wish to contact a small business accountant. Many will offer an initial consultation for free, and the specific advice they can impart is incredibly valuable.

The Next Step

Now that you have read through the advice above, you might want to put it into practice. Our Self Assessment Helper lets you confused by self assessment? Tell us about your income and circumstances and get a clear guide to what you need to declare, what you can claim, and the key deadlines. Try it now →