Tax Planning Tips Every Small Business Owner Needs to Know

As a business owner, we know you are busy building, managing, and maintaining your company. That often means your financial planning takes a back seat. Some of the many challenges that we see company owners face include, but are not limited to:

  • Income Extraction

  • Business Sale/Succession Planning

  • Funding Pensions

  • Adequate Insurance

  • Ongoing Large Tax Bills

  • Time to Review Finances

  • Tax Bill Panics

Tax planning is an essential part of your financial plan. Understanding the intricacies and how they might apply to your situation can take time and effort. We understand these challenges because we work with business owners and can help you navigate the different options to tailor a unique plan that matches your needs.

Why Tax Planning Matters for Small Businesses

Effective tax planning can lead to substantial benefits for small business owners. Whether it’s extracting income and dividends in the most tax-efficient way or optimising pension contributions, careful planning makes a difference. For example:

  • Reducing Corporation Tax: Employer pension contributions are tax-deductible, lowering your overall corporation tax liability.

  • Protecting Your Family and Business: Proper planning for directors’ insurance can safeguard your family and ensure your business’s continuity should the unexpected happen.

On the flip side, unpreparedness can create significant challenges, including last-minute tax bill panic, cash flow issues, and unnecessary stress. Avoiding these pitfalls requires a proactive approach to financial and tax planning.

Keeping Your Financial Records Organised 

Keeping accurate and organised financial records is a cornerstone of effective tax planning. This involves:

  • Recording Allowances and Reliefs: Ensure you track and document all applicable tax allowances.

  • Using a Paperless System: Digital records make storing important documents like receipts and certificates easier.

  • Avoiding Missed Opportunities: Poor record-keeping can lead to missed claims or challenges during HMRC audits.

Good record-keeping ensures you’re always prepared to substantiate your claims and benefit fully from available tax reliefs.

Keeping Your Allowances and Reliefs 

Investment Allowances

  • Annual Investment Allowance (AIA): Claim 100% tax relief on qualifying plant and machinery up to £1 million annually.

  • Research & Development Tax Relief: Deduct a significant percentage of qualifying R&D expenditure and, if eligible, claim tax credits for innovation.

Tax Reliefs for Selling the Business

  • Business Asset Disposal Relief: Pay a reduced Capital Gains Tax (CGT) rate of 10% on qualifying business sales.

  • Incorporation Relief: Defer CGT when transferring your business to a limited company.

  • Roll-Over Relief: Defer CGT by reinvesting sold assets into qualifying new assets.

Other notable reliefs include the Small Profits Rate, Employment Allowance, and Structures and Buildings Allowance, all of which can reduce tax burdens and encourage growth. Planning tools like Business Relief are helpful when preparing for a sale.

Maximise Pension Contributions 

Pension contributions are an excellent way for business owners to save tax-efficiently.

  • Employer Contributions: These are deductible against corporation tax, reducing tax liability while helping you build long-term financial security.

  • Tax Efficiency: Pension contributions reduce taxable income while securing a future income stream.

Understanding the nuances of pension tax relief can be complex. Getting it right optimises your tax position and ensures compliance with current legislation.

Plan for VAT and Corporation Tax 

While VAT and corporation tax planning typically fall within your accountant’s remit, business owners are crucial in providing accurate data and understanding how allowances impact overall tax liability.

  • VAT Compliance: Maintain accurate records and ensure timely submissions to avoid penalties.

  • Corporation Tax Efficiency: Use allowances such as the AIA and employer pension contributions.

Avoid Common Tax Mistakes 

Small business owners often need help with tax planning. Here are frequent errors and how to avoid them:

Frequent Mistakes

  • Not Separating Personal and Business Expenses: Mixing accounts can make it harder to claim legitimate expenses.

  • Missing Tax Deadlines: Late submissions lead to penalties and interest.

  • Overlooking Allowable Expenses: Home office costs, mileage, and travel should be more recognised.

Actionable Tips

  • Use accounting software to track income and expenses.

  • Set reminders for tax deadlines to ensure timely submissions.

  • Regularly review allowable expenses with your accountant or adviser.

Leverage Professional Advice 

Tax laws are complex and constantly changing, which makes consulting with professionals a crucial step for small business owners. Here’s how expert advice can help:

  • Stay Updated: Keep up with changes in tax legislation and avoid compliance risks.

  • Make Informed Decisions: Identify tax-saving opportunities tailored to your business’s circumstances.

  • Strategic Planning: Develop a long-term financial plan incorporating personal and business goals.

At Ifamax Wealth Management, we specialise in helping small business owners navigate the complexities of tax planning. We support your journey from income extraction strategies to pension contributions and succession planning.

Ready to Simplify Your Tax Planning?

Contact Ifamax Wealth Management today to start building a tax-efficient plan tailored to your business and personal goals.

Risk warning

This article is distributed for educational purposes only and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product. Reference to specific products is made only to help make educational points and does not constitute any form or recommendation or advice. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.  


Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

Ashton Chritchlow