Using tax to help your business grow sounds as though it’s counterintuitive; after all, tax is something you need to pay and affects how much liquid cash you have in your business. However, if you have the right tax strategies in place, you can minimise the amount of tax you need to pay, improving your tax flow and allowing you to reinvest in your business.
What’s involved in tax planning?
Essentially, it boils down to making smart decisions about your taxes and how they work with your business. After all, you don’t want to avoid paying all tax, you just want to minimise the amount you’re paying so that it works with your business rather than against it. Therefore, you need to think about things such as:
- Choosing the correct tax structure for your business
- Ensuring the correct timing of income and expenses
- Taking advantage of tax reliefs and allowances that apply to you
How can tax planning help your business?
Have you felt that your business is paying too much tax compared to its income? This could be due to poor tax planning. Effective tax planning can:
1. Ensure compliance and avoid penalties
If you fail to pay your tax bill on time, your business faces fines, penalties and interest. However, if you stay up-to-date and compliant with your obligations, such as filing returns on time and keeping accurate records, you could avoid costly mistakes.
2. Reduce liabilities
Ensuring your business claims allowances and reliefs, while also having a tax-efficient strategy in place, can mean you reduce what you owe in the first place; therefore, you need to pay less tax.
This reduction in tax liabilities allows for better reinvestment into the business, meaning you can experience higher levels of growth.
Talk to your accountant today to find out if you’re making the most of your tax strategy.
3. Improving your cash flow
Avoiding penalties and reducing your tax liabilities both serve to improve your cash flow. But there is another way effective tax planning can improve your cash flow, and that’s through knowing how much tax is due and when you need to pay it. Once you know both of these, you can plan your budget accordingly.
If you need to structure your tax in a more efficient way than you have been until now, contact your accountant today to see how they could help you make your tax work for you.