Taking a proactive approach to your tax planning is essential to maximising your efficiencies and reducing liabilities in your business.
It allows you to make smarter financial decisions for your business and gives you greater control over your finances as a whole.
What does a tax action plan involve?
The first step in creating a tax action plan involves evaluating your current position in order to understand where improvements can be made. This means reviewing income sources, investments, expenses and investments in order to not only reduce your tax obligations, but also to take full advantage of deductions and maximise benefits available under tax law.
From here, your accounting team can make informed decisions about the actions needed in order to improve your financial well-being and put you in a better position to reach your long term business goals.
With a proactive, well-optimised plan, you can maximise the deductions available to you, and reallocate funds you might’ve spend on payments towards other financial goals you may have, whether they be personal or business related.
Whether you’re new to tax planning or you’re looking to perfect your process, this blog can help you create an action plan that maximises.
Understanding tax planning
Understanding tax requirements and planning for them is essential, whether you’re an individual or a business owner. It allows you to plan your year and manage your money far more efficiently.
Basic principles of tax planning
To start with, there are some key basic principles to be aware of when of when tax planning within the UK tax system:
- Compliance: There are tax compliance rules set out by HMRC, which everyone needs to follow in order to avoid paying penalties. Understanding and adhering to these is essential for efficient tax planning
- Knowing your benefits: Within the UK tax system there are also a number of tax benefits you can take advantage of. This means leveraging allowances, deductions, reliefs and exemptions in order to make savings and optimise your position
- Record keeping: This is the day-to-day upkeep of essential finance records which allows you to accurately plan your tax responsibilities, and help you apply for reliefs and reductions
- Proactivity: Tax planning is not something you do once a year. It has to be repeated and regularly reviewed to identify all the opportunities available to you, allowing you to capitalise on them.
The different types of taxes in the UK
In the UK, there are a range of different types of taxes that you may be required to pay in to, depending on your circumstances.
Each one has their own set of rules, and it’s important you’re aware of what they are and how they work to maximise the efficiency of your tax planning and to ensure you avoid any penalties.
Here are the common types of tax that are likely to affect you and your business.
- Income tax is a tax levied on the earnings of individuals in the UK, including salaries, wages, and other forms of income. It is typically deducted directly from the individual’s paycheck by their employer on a Pay As You Earn (PAYE) basis or paid through self-assessment if the individual is self-employed, with payments made annually. The amount paid varies depending on income and the applicable tax brackets.
- Capital gains tax is taken based on the profit made from the sale of assets such as property, stocks, and shares in the UK. It is payable by individuals or companies who have made a profit from the sale of such assets, with payments typically made through self-assessment at the end of the tax year.
- Inheritance tax is a tax levied on the estate of a deceased person in the UK, including property, money, and possessions. It is usually paid by the executor of the will or the administrator of the estate and is due within six months of the person’s death.
- Corporation tax is a tax levied on the profits of UK-resident companies and certain non-UK resident companies with a permanent establishment in the UK. It is paid annually and is calculated based on the company’s taxable profits.
- Value added tax (VAT) is a consumption tax levied on the sale of goods and services in the UK. It is usually included in the price of goods and services and is paid by the consumer at the point of sale. VAT-registered businesses collect VAT on behalf of HM Revenue and Customs and then submit payments to HMRC regularly, typically quarterly.
- National Insurance is a social security tax in the UK that funds state benefits, including the National Health Service (NHS), state pensions, and other welfare programs. It is paid by employees, employers, and self-employed individuals based on their earnings. Employees’ contributions are deducted directly from their paychecks, while employers and self-employed individuals make payments directly to HM Revenue and Customs. Contributions are made throughout the year, with specific thresholds determining the amount payable.
Benefits of tax planning
Of course, there are huge benefits to planning your taxes, which can help plan your year in a way that ensures you’re making the most of schemes and reducing fees.
Let’s take a closer look:
- Increasing Savings: By strategically managing your finances and tax liabilities, you can potentially increase your savings, allowing you to make savings on your overall outgoings.
- Minimising Your Tax Obligations: Through careful planning and leveraging available tax reliefs, deductions, and exemptions, you can reduce your overall tax burden. This involves structuring your finances in a way that optimises tax efficiency, ensuring you only pay what is legally required.
- Benefitting from Business Tax Advantages: By taking advantage of tax incentives, allowances, and reliefs, your business can lower their taxable profits, freeing up capital for reinvestment or expansion.
- Protecting Assets: Tax planning can also involve strategies to protect your assets from excessive taxation or other financial risks. By understanding the tax implications of different asset protection methods, such as trusts or insurance products, you can safeguard your wealth for future generations.
- Reducing Risks of Penalties: By staying compliant with UK tax laws and regulations, tax planning helps mitigate the risk of incurring penalties or fines from tax authorities. By proactively managing your tax affairs and ensuring timely filing of returns, you can avoid costly consequences and maintain a good standing with the tax authorities.
Getting started on creating your tax action plan
If you’re interested in strategically planning your taxes to support the growth of your business, the first step is assessing your current situation, along with where you’d like to be in the coming years.
One of the most effective ways to create a tax plan is to utilise the skills and knowledge of an expert. A tax specialist, who knows the ins and outs of all tax laws, reliefs and deductions will help you plan your year and make the most of your tax situation.
Here at Ascentis, tax minimisation is one of our four pillars of success, and our team has a huge range of experience in helping businesses and individuals strategically plan and reduce tax payments.
So, if you’re looking to create a tax action plan, book in a discovery call today.