How Can SMEs Look to Manage Their Tax Liability?

While the Brexit negotiations continue to stumble along, new research suggests that the nation’s army SMEs remain enduringly optimistic about the global economy and their role within it. If these SMEs are to unlock their ambitious growth plans for the next 12 months and beyond, however, they’ll need to go back to basics and get to grip with their finances.

In this post, we’ll look at how SMEs can manage the tax liability with greater efficiency and reduce their annual spend.

1. Use Saving and Tax Allowances to Receive Dividends

Tax and finance legislation includes a number of basic reliefs and allowances, with the value of these having increased sharply in recent years.
As a result of this, it’s also possible to leverage savings and dividend income alongside capital gains to secure tax-free allowances that can mitigate your SME’s tax burden.

In specific terms, entrepreneurs and senior managers can leverage their personal, tax-free allowance of £11,000 to receive dividend income from the business. This is a popular loop-hole in the modern age, and one that SMEs can use creatively to their advantage.

2. Maximise Company Pension Contributions

Perhaps the easiest method of managing your businesses tax burden is to optimise the level of company pension contributions.
By investing accrued capital into a viable pension scheme such as a SIPP (self-invested personal pension plan), you’ll be able to either reduce your total amount of corporation tax paid or subsequently receive tax relief on the personal contributions that are made.

Wealth and finance planners such as Tilney can help to advise you in this respect, as can objective outlets such as the FCA (Financial Conduct Authority).

3. Review your Firm’s VAT Method

If your business is registered for and pays VAT (value-added tax), it may also be worth reviewing your method used to meet your obligations.
In some instances, for example, it may be better to move away from a flat rate of VAT and instead embrace the standard or cash accounting scheme to cover your liability.

This will not only enable you to remain on top of the national VAT rate changes as they continue to impact on your firm, but it will also minimise your overall tax bill for the financial year.

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