Understanding tax strategies can help you free up essential cash flow and save money from tax reliefs. Below we have listed several ways in which you can legally lower your tax bill.
Transfer pricing is the name given to the process of one company transferring money to a subsidiary that is based overseas. This process is a loophole in the tax system and is famously used by all the major companies HMRC has accused of avoiding paying UK taxes.
The amount of tax payable in the UK is only based on the accountants of the business based in the UK rather than the total amount of tax that should be payable based on earnings from the UK. Therefore it is easy for large corporations to transfer huge sums of cash to offshore subsidiaries and not be liable to pay tax.
Make an investment with a loan
If you make an investment through the Enterprise Investment Scheme (EIS), you receive a 30% relief in taxes on the amount you invest. Examples of investments under the scheme include small businesses and films. If a profit is made, annual dividends are paid – although they could be taxable depending on your earnings elsewhere.
It can be risky, but if you take out a loan for the amount of the investment you will be able to pay the loan back with your dividends and save money on tax relief.
There are several government schemes that offer tax relief. One recent example is Patent Box which taxes a company´s worldwide profit at 10% rather than charging the UK corporate tax which is more than twice as much.
If you make a loss one year, you can offset the amount against previous years which gives you a greater potential of a tax refund. There are numerous losses that can be offset against income and capital gains tax and providing the strategy is not designed to deliberately avoid paying tax, making a loss is a good way to improve cash flow for the next financial year.
It may sound a little bit daunting, but from a tax point of view it is often better for companies to finance themselves with debt rather than equity. Carrying a debt gives you tax relief on several areas including tax credits and adjusted gross income. This is a top-trump card that start-up businesses and graduates saddled in debt from their student days should be playing.
A recent tax law allows companies to declare costs on purchases, but hold back on invoices that have not been paid by clients. If you have sent an invoice, but the client has not paid for goods or services by the time you submit your tax return form, you do not have to declare the amount of unpaid fees.
Nobody wants to pay taxes they do not have to pay and knowing where you can pick up tax reliefs can free up some cash flow so you can grow your business. If you need advice about how your business can benefit from tax relief schemes call Taxaccolega, a low fixed fee chartered accountant in London, now on 08000 235 234 or email at firstname.lastname@example.org.