The Lowdown on Tax Planning

by Adam Marlow

The Lowdown on Tax Planning

There are two main ways for a business to get its hands on more non-repayable cash. You can make more profitable sales, and get paid for them more quickly and you can also pay less tax and/or receive bigger tax refunds. 

As tax is effectively one of the largest costs in your profit and loss account you should manage it closely to ensure you reduce your tax bills to the absolute legal minimum and increase your tax refunds to the absolute legal maximum. To do that, you need to understand the differences between the four types of tax planning. 

The four types of tax planning 

Tax Evasion 

Keeping things ‘off the books’, working cash in hand, dodgy advice from some bloke down the pub and all other forms of deception and untruthfulness are, quite rightly, illegal. So I know you would never contemplate them. Happily, the remaining three types of tax planning are all entirely legal.  

No Tax Planning 

This is what many businesses do by default. They simply get their accounts done and get told what their tax bills are after the trading year has finished and therefore too late to take any action to reduce their taxable profits legitimately.  

As a result, they often end up paying the absolute maximum in tax, and never the absolute minimum. So it’s tax by default.  

Basic Tax Planning 

This is what most businesses do if they have good management accounts to know what their profits are looking like at say the 9th-month stage of their trading year.  

Through basic tax planning strategies, such as incorporating the business, taking dividends rather than salaries and carefully timing when they spend money on assets, pensions etc. they are often able to reduce their tax bills by between 5% and 25%.  

Advanced Tax Planning 

Even though the tax avoidance industry has effectively been put out of business by the Governments belated (ab)use of its powers, there’s still plenty of non-contentious planning that can be undertaken.  

This includes strategies such as the use of different legal entities to safeguard assets and keep profits in the corporate arena rather than drawing these and losing more than 30% to the taxman. 

 

Although we always work with tax reduction firmly in mind this is no replacement for a full tax review to identify ways to reduce your tax bills. This is what we do as part of our taxMINIMISER service (taxPLANNER). 

The full tax review allows us the opportunity to spend some dedicated time each year on your tax affairs. During a taxPLANNER review we can ensure all the basic tax planning is in place and also consider whether any of the advanced planning strategies could apply to your circumstances.  

Some of these advanced strategies also need the help of external specialists such as pension administrators, lawyers and the like.  

Plus most of these strategies will take several weeks to implement so leaving this matter to the eleventh hour just won’t work as your year-end will pass by and the opportunity could be missed. 

So, the two questions you need to ask yourself are these: 

  1. Which of the three types of legal tax planning are you currently doing?
  2. Is there room for improvement by taking more advice in relation to your holistic tax arrangements?

To discuss how we can help you pay less tax please contact us on 01530 833474 or email info@marlow-proactive.co.uk to book a meeting with our team.

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