Running a small business relies on you having a general understanding of many different processes. Tax is one of the more difficult that most people struggle with. The entire prospect of navigating tax legalities is often daunting. But with some strategic planning, the right resources and the help of specialist tax consultants, small businesses can ensure compliance but also optimise their tax position.

Understanding tax obligations

To manage something more effectively, you must understand it. In the UK, small businesses are usually subject to various taxes, including Corporation Tax and Value Added Tax (VAT). The amount you pay depends on how much profit you make. Employees are also subject to Pay As You Earn (PAYE) tax and National Insurance contributions.

Each tax has its own thresholds, rates and deadlines that businesses must adhere to. Non-compliance can result in penalties and interest on unpaid taxes, so staying informed and above board is crucial.

Managing expenses and record-keeping

One of the foundations of effective tax management is accurate record-keeping. You should keep detailed records of all your business's income and expenses, but this process can be made easier with the use of dedicated accounting software.

Accurate tracking makes it easier to prepare your tax returns when the time comes but also helps you take advantage of any allowable deductions or reliefs. Accountants or accounting software are often invaluable in supporting the process. 

Financially preparing for taxes

Tax planning can't be left to the last minute. It requires an ongoing process of planning and allocating money to cover your tax bill at the end of the financial year. Failure to prepare can lead to cash flow problems when your bill is due, which is something that no small business needs.

Strategic planning can also help to reduce your taxable profit. For example, timing significant asset purchases to increase your annual expenditure may lower your tax bill significantly. But be sure to check whether your purchase qualifies before submitting tax returns.

Tax benefits to utilise

Businesses of all sizes are offered allowances and reliefs, many of which can be a lifeline to small ventures. Research and Development Relief, Marginal Relief and capital allowances can be used tactically to reduce your tax bill. Tax experts can advise you on the reliefs applicable to your business and help you take full advantage of them.

Managing tax as a small business is far from simple, but with the right resources, expertise and planning, you can navigate the process to stay compliant and put your operation into a healthy financial position.