For business owners in the UK, taxes can often be one of the largest expenses incurred. From corporate tax, to VAT, to personal income tax and National Insurance contributions, the various tax liabilities can quickly add up to a sizable amount every year. That’s why it’s absolutely essential for business owners to take advantage of legitimate tax planning strategies and deductions to minimise their tax payment burden.

This article will explore the key areas where UK business owners can implement tax planning tactics and utilise allowable deductions to lower their taxable income and retain more of their hard-earned profits. 

Claim All Allowable Business Expenses 

The number one tax reduction strategy is to carefully track and claim all permissible business expenses. Maintain thorough bookkeeping records and deduct any business costs allowed under HMRC rules. Common deductible expenses include: 

  • Office supplies – Stationery, printing, postage, furniture, equipment.
  • Technology costs – Software, subscriptions, hardware, mobile costs.
  • Premises expenses – Rent, utilities, insurance, maintenance and repairs.
  • Marketing and advertising – Print, digital, website, signage.
  • Vehicle expenditures – Mileage, fuel, maintenance, tax and insurance.
  • Accounting and legal fees.
  • Training and professional development costs.
  • Salaries and contractor expense – Inventory, materials, and operating expenses.
  • Interest on business loans and fees – Business travel accommodations and meals. 

Completely separating all business costs from personal finances and diligently tracking qualifying expenditures is crucial to maximising write-offs. Deduct every allowable business expense to reduce net taxable income. 

Leverage Available UK Tax Reliefs 

In addition to normal business expense deductions, take advantage of special UK tax relief programs:

– R&D Tax Credits – Up to 230% deduction on qualifying research and development activities
– Patent Box – Reduced 10% tax rate on patented innovations
– Creative Industry Reliefs – Boosted deductions for TV, animation, films, and video games
– Capital Allowances – 100% tax deduction for plant and machinery purchases
– Carry Back Relief – Offsetting losses during downturns against prior year tax

Work closely with your accountant to identify which capital tax reliefs you may be eligible for based on your industry and business characteristics. Taking advantage of relevant programs can generate substantial tax savings.

Contribute to a Pension

Making contributions to a personal or company-sponsored pension plan allows you to deduct those amounts from taxable income. Options like self-invested personal pensions (SIPPs), small, self-administered schemes (SSASs) offer tax-advantaged retirement savings opportunities.

Personal pension contributions up to 100% of relevant UK earnings are deductible. But company contributions are often more tax efficient because wages suffer National Insurance (NI), and they are a cost to reduce Corportation tax. This moves company capital to personal wealth, helping to ringfence it. 

Select the Right Business Structure

Your business structure has a major impact on taxes owed. As a sole trader, your business income is reported on your personal tax return and subject to income tax. Partnerships also pass-through profit to be taxed at the personal level.

With a limited company, the business exists as a separate legal entity. The company pays corporate tax on profits, then shareholders pay personal tax on dividends drawn from profits. With planning there are tax savings versus sole tradership.

Your accountant can advise on the optimal structure given your profit levels, whether you have a partner or operate alone, liability needs, and other factors. Choose wisely for maximum tax efficiency.    

Take Salary and Dividends From Profits 

As a director and shareholder of a limited company, drawing a combination of salary and dividends from company profits can minimise your tax liability. 

Salary is subject to income tax and National Insurance. But dividends are paid after corporation tax and are exempt from NI. Optimise the allocation between salary and dividends based on allowances to reduce NI and maximise after-tax income you can withdraw. 

Review Annually With Your Financial Adviser 

Tax rules and your business needs change. Sit down with a financial adviser annually to review planning opportunities tailored to your circumstances.

Assess the impact of any life changes over the past year. Look for ways to further lower your tax bill as your business evolves. Keep your taxes in check so you retain more of the profits you earned. 

Use Allowances and Thresholds

Take advantage of tax-free allowances and thresholds by managing your earnings and deductions under the limits. For example for tax year 2024/25:

  • Personal Allowance – £12,570 tax-free
  • Dividend Allowance – £500 tax-free
  • Starting Rate for Savings – £5,000 at 0%
  • Capital Gains Annual Exempt Amount – £3,000 tax-free 
  • Rent a Room Relief – £7,500 tax-free rental income
  • Employment Allowance – £5,000 off employer NI contributions

Careful planning and working with your accountant to use relevant allowances, reliefs, and deductions can lead to thousands in tax savings annually. Do not leave potential tax relief on the table. 

“What is the difference between a taxidermist and a tax collector? The taxidermist takes only your skin.” – Mark Twain

In Summary 

Taxes are one of the largest expense burdens for most business owners in the UK. That is why implementing personalised tax planning strategies is so important.  

Follow the tips in this guide – deducting all permissible business expenses, utilising available tax reliefs, contributing to a pension, choosing the optimal business structure for your circumstances, drawing salary and dividends effectively, reviewing plans annually with your accountant, and leveraging all relevant allowances and thresholds—to legally minimise your tax liabilities. A bit of diligence and expert help goes a long way to keeping more of the income you earned and maximising your resources for future growth and success.  

Our team of multi award winning Chartered Financial Advisers at Fiducia can help you. Speak to our team.