As a small and medium-sized enterprise (SME) business owner in Scotland, it’s important to start thinking about your end-of-year tax planning early. By taking the time to review your finances, you can avoid costly mistakes, identify any potential tax savings, take advantage of any benefits available to you, and ultimately reduce your tax bill.
At MMG Chartered Accountants, we provide more than just accountancy services – we are leading tax advisors for Scottish SMEs across 6 office locations in Dundee, Montrose, Forfar, Brechin, Creiff, and Perth; and we also offer virtual appointment availability to suit any busy schedule. As an add-on to our accounting and audit services, our tax advisers can work with your team to help you secure a more profitable year-end and make the most of your resources. We’ve previously talked about growth strategies, and year-end tax planning is a big piece of that puzzle! By ensuring you are in a financially stable position early on, there also shouldn’t be any nasty surprises come year-end, however, we know that getting on top of business strategy isn’t always the most fun – which is why we’re here to help.
Here are the key things to consider when planning your end-of-year taxes:
While it may sound obvious, taking a closer look at your income and expenditure for the year and comparing the figures to the previous year can help you identify areas where you can reduce not only your tax bill but also your expenses. If you’re routinely paying for services you do not use or that do not provide value for money it means it’s time to change tactics or invest your hard-earned money elsewhere!
If your business has been established for a while, it’s also important to plan ahead and consider your long-term goals rather than aiming for short-term wins. This will be critical to improving your financial position and also help you make better-informed choices. This type of planning can also help mitigate risks such as penalties or other legal issues should your short-term plans fall through and you’re left with less capital than you expected! (Speak to our accredited team of Chartered Accountants to put your long-term plans into motion and get a helping hand in growing your business.)
There are also a number of grants, schemes, and benefits available to companies depending on their size and business type, for example, incorporated companies can make use of Research and Development Tax Credits and Seed Enterprise Investment Schemes which can help improve your cash flow, deliver tax relief, and bring more funding into your business. There are also a number of tax-efficient investment options available to Scottish SMEs, such as the Enterprise Investment Scheme (EIS) which offers tax relief to your investors if they are buying shares of your company – thus providing an incentive for them to invest more and help your business grow (find out more about this scheme on the Government website).
The Employee Ownership Trust (EOT) model can additionally provide significant tax advantages as well as employee benefits that can attract even more talented individuals to your business. The scheme enables employers to pay tax-free bonuses of up to £3,600 per year, as well as providing corporate tax deductions for the company.
On the subject of employees, contributing extra to employee pensions is also a greatly beneficial option that not only provides a valuable benefit to employees but also reduces your taxable profits. By taking advantage of pension contributions you can support your employees’ financial well-being and also attract more applicants when you’re recruiting as these types of company benefits are sought after by many people who are looking for work (research by Drewberry Insurance found 58% of UK employees would like higher pension contributions from their employers – coming in second to the request for more holidays!).
If you are a new business in Scotland and you’ve just registered with HMRC, you will need to pay UK Corporation Tax on your profits. As a small business with profits of £50,000 or less (note profits, not revenue!), you will pay the smaller 19% tax rate. However, for larger businesses whose profits are £250,000 or above, the Corporation Tax rate is 25%. Read more on this on the Scottish Development International website.
Additional considerations for sole traders, partnerships, and LLPs
While some schemes will only be available to incorporated businesses, there are still a number of tax allowances and reliefs available to sole traders, partnerships, and LLPs, such as the Employment Allowance scheme and capital allowance schemes. Capital allowance schemes work by letting you deduct some (or all) of the value of an item from your profits prior to paying tax – therefore reducing the amount of tax you pay on your profits. You can claim capital allowance on items that fall under the category of “plant and machinery” such as equipment, business vehicles, and more (but note you cannot claim on items you rent). Find out more about this scheme on the Government website.
It can also be extremely beneficial to familiarise yourself with local schemes available in your area by connecting with your council and organisations such as your Chamber of Commerce or branch of Business Gateway… Or, of course, your accountant, who will be able to check your eligibility as well as provide you with more information about how to make a claim!
To keep yourself organised as a small business, you can also look into cloud accounting solutions as these can be a powerful tool for growing businesses and help you keep better track of your company’s income and expenses, as well as provide better forecasting capabilities and save you and your admin staff time when it comes to generating reports and figures. Most digital accounting solutions such as Xero, Sage, and QuickBooks also come with sign-up benefits for SMEs and an easy-to-use mobile app that can help you scan receipts, check finances on the go, or share reports with your accountant. (Learn more about digital accounting solutions and their benefits in our previous article).
Additional Useful Links:
- Breakdown of business taxes in Scotland
- Financial and tax incentives
- Accounts and tax returns for private limited companies (including deadlines)
- Self Assessment tax return deadlines
- Benefits Of Cloud Accounting Solutions For Businesses (With Examples)
- Navigating Pensions & Retirement Planning in Scotland
- Managing Winter Sickness Absence
- Top Tax Mistakes to Avoid: How to Ensure a Smooth Tax Filing Season