What is tax planning in business? Find out more about the difference between corporate tax planning and personal tax planning in the UK. This article looks at business tax planning, tax planning opportunities and more.

What is Business tax planning?

Tax planning is the best way for companies to legitimately reduce their tax bills and improve their tax position and financial health. Even the most basic tax planning measures can significantly reduce your tax liability, meaning you can put more of your money back into your business.

For the best effect, as a business owner, your tax planning should be done in combination with your personal tax planning, as working on both taxation outgoings together helps to keep your liability at a minimum.

Whatever tax you have to pay, from business and corporation tax to income tax, planning for all your taxation should work together. Of course, this can often be complicated, especially if your tax arrangement is different or unusual from the norm.

Therefore, our advice is that you don't try to carry out your own tax planning. This is because people can find themselves in serious trouble if they file their taxes incorrectly.

So, for the best tax planning, always seek professional advice. This is the best way to reach your financial goals and grow your company while legally minimising your taxes.

Business Structures

If you're just starting up a small business, then tax planning should be one of the things you pay a good deal of attention to. Making the right choices for your legal structures from the start can have a significant impact on your tax bills later on.

For example, if you form your company as a sole trader or partnership, you will be classed as self-employed, meaning you must pay income tax on any business profits.  In this instance, any tax planning you undertake should focus more heavily on your income tax planning, alongside any other personal tax planning issues you expect to face

Other tax issues you may have to account for include inheritance tax that your family or other designated individuals might have to pay. This can be reduced through effective tax planning. On the other hand, limited companies require tax planning for corporation tax, alongside any income tax planning you might arrange.

This is where things can get a bit complicated, given that you'll have to factor in all the elements that contribute to your overall tax contributions. These can include your business's profits and the income you take from it. And tax isn't the only consideration for limited companies; you also need to think about limited liability protection and other financial factors.

Tax Planning

Regardless of whether you own a start-up, SME or are already a high-net-worth individual, effective tax planning can help reduce your tax liability. Additionally, ensuring you are working from expert advice is crucial, given the complex and ever-changing nature of the UK tax system. 

It's very easy to get into trouble with the government's rules if you aren't fully aware of what they are and how they affect your business' tax liability.  Luckily, however, there is a variety of reliefs, tax benefits and provisions you can take advantage of to reduce your tax bills.

These are all legally available and will help you to create a tax-efficient business rather than falling into the notorious categories of tax avoidance or tax evasion. This is crucial to ensure you stay on the right side of HMRC and avoid any penalties.

Most planning experts and tax services have the skills to create the perfect tax arrangements for your company to help your business succeed. Whether you want to take your tax digital, these professionals can create tax plans for you and your business that make the most of your future profits.

This can improve your overall wealth and the wealth of your business, ultimately giving you better financial control to create the life you want to lead.

Considering your tax liability is crucial for any business, and your considerations may include one of the following, if not more:

• If you want to incorporate as a limited company or establish your business as a traditional partnership.
• How to distribute your profits and income in the most tax-efficient way.
• Passing your business on to the next generation of your family or bringing in new management.

Corporate Tax Planning

For many businesses, corporation tax accounts for some of the largest costs they incur each tax year. Corporation tax also takes up a lot of your time, given how robustly tax authorities enforce it.

Whether it's compiling and maintaining reports or providing information for investigations, corporation tax can prove a significant distraction. And it's one you'll have to endure, given the severe penalties that exist for non-compliance. That is if you don't have proper tax planning in place.

With tax planning professionals by your side, you can relieve yourself of the administrative burden and create a company that minimises its exposure to corporation tax while complying with all appropriate rules and regulations.

Some of the ways in which these tax experts will do this might include the following:

• Helping your company benefit from reliefs and tax opportunities in every way possible.
• Find the most tax-efficient way to structure your particular business.
• Secure your company the best revenue or capital tax treatment they can.
• Reducing the tax you pay for disposals and attaining all possible relief on acquisitions.
• Take full advantage of tax reliefs specific to the industry you operate in.
• Speaking on your behalf with the relevant tax authorities.
• Ensuring all your taxation meets compliance regulations, including any self-assessment tax returns for other income.

Personal Tax Planning

Tax planners can also help you with your personal taxation requirements. Given that the regulations around tax are always changing, individuals need to fully understand their tax implications and what is required of them in their personal contributions.

Of course, with the complexity of some tax legislation, this can be difficult for business owners, who already have a lot to deal with when running a business.

This is where accounting and tax professionals come in, freeing up your time and handling all the administration surrounding your taxes. The services that tax experts provide in this area can include:

• Assistance with Income Tax, Capital Gains Tax (CGT) and Inheritance Tax (IHT).
• Completing and filing appropriate self-assessment tax returns.
• Help with minimising personal tax liability.
• Provide reminders on which of your payments is due and when and warn you of potential risks.  
• Advise you on the best way to establish trusts or funds and manage your estate and assets, so you are taxed appropriately.

Key tax planning opportunities

Maintaining an ongoing tax planning regime is the best way to ensure you take advantage of all the opportunities available to reduce your tax liability.

Not only will you be able to keep on top of your tax liability for the foreseeable future, but you'll also be able to defer income or bring forward allowable expenses you expect to pop up in the future. All this can help with delaying tax payments, allowing you to run a more efficient business.

As a business owner, you'll also need to think about the best way to bring in your income, especially when it comes to Income Tax planning. One common method that most savvy business owners use is not to be paid an income at all.

While this sounds ridiculous, paying yourself through company dividends means you are exempt from National Insurance, as salaries are the only income subject to contributions.

If you are self-employed, keeping on top of the tax relief you are eligible for through pension contributions, alongside capital allowances, is the best way to cut down your Income Tax obligations. Tax planning is also essential if you are undertaking any major moves in your business, such as acquiring another business or selling your own.

Speaking to a professional advisory service is the best way to go when you're unsure about paying tax, tax savings, tax liabilities or business tax planning at any point throughout the tax year.

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