Tax liabilities are based on the amount of profit or gain, which depends on many factors. Tax-saving measures are often hidden in various areas of tax affairs.
For example:
- The structure of the business, property portfolio, strategies, record keeping, and timing of spending.
- Tax rules are the same for everyone, but tax liabilities are not. In social settings, entrepreneurs frequently discuss their business and tax liabilities. We compare our VAT, PAYE, Income Tax, Corporation Tax, etc., with friends, and everyone tends to believe that others are paying less. This is a myth because:
- Everyone’s circumstances are different.
- Not everyone shares the “full facts.”
Many business owners then question their accountant about why their tax bill is so high compared to someone else’s, especially when their businesses seem similar.
If you’re considering saving tax, please consider these points.
Have you ever discussed the possibility of saving tax with your accountant, or do you simply expect your accountant to manage tax savings on your behalf? Many believe that it’s solely the responsibility of their accountant.
Please read the engagement/contract document from your accountant when you signed up for the services. It will list services such as Annual Accounts, bookkeeping, Payroll, VAT return, Tax returns, etc. This list typically outlines the compliance services you have subscribed to. Generally, an accountant is available to give you advice before making a financial decision, which can lead to tax savings. However, there is little an accountant can do if you have already made the decision and spent the money.
Tax rules are complex and strict. They require research, analysis, and a deep understanding of personal circumstances and requirements. They also require strategic planning with precise timing. Here are some examples of where entrepreneurs can save tax:
- Buying a new asset such as a car, machinery, computers, or property?
- How does your gross profit compare with other businesses in a similar sector?
- What are your pricing strategies and pricing model?
- Are you adding new products or services?
- What are your product costs and labour costs, and how do they relate to pricing?
- Are you planning to sell any assets?
- Are you getting married in the future?
In simple terms, your accountant generally provides advice, and you take the action that leads to tax savings. The accountant’s role is limited, but as an entrepreneur, if you act in line with the advice, you can save tax.
These are the areas every entrepreneur needs to consider. Many entrepreneurs make statements like:
- “I don’t understand numbers or finances; that’s the job for my accountant!”
- “Tax saving is what I pay my accountant for!”
- “I don’t believe in planning; I don’t have time!”
- “I work on my own; I don’t have anybody for these record-keeping and admin tasks!”
If you find yourself making these statements, then you are likely paying too much tax.
Finally, many business owners decide to engage an accountant based on the cheapest fees. Instead, they should be asking:
- Why is my accountant cheaper than a “Qualified Chartered Accountant” who holds a practicing license?
- Does my accountant hold a “Practicing Licence”?
- Is my accountant regulated by a supervisory body such as the ACCA or ICAEW?
In reality, a licensed Chartered Accountant is regulated, monitored, and insured with Professional Indemnity Insurance to protect your work. Although there is a cost involved, it often leads to tax savings that could offset the difference in fees and potentially provide even greater benefits.
So, try your best to:
- Ask your accountant how to save on taxes.
- Find out more about your accountant’s qualifications and regulatory compliance.
- Provide accurate records regularly.
- Take time and show interest in understanding your business better.
- Keep an open mind and actively seek advice.