Finding Money in Your Business

Finding Money In Your Business

Finding money in our businesses without having to do very much sounds a little fantastical – but the reality is, it can be done. I’m not talking about chasing unpaid invoices or putting up prices. This money comes through tax savings and government incentives you might not be fully aware of.

Working as a Finance Director with numerous 7-figure businesses, I often find thousands of pounds in legitimate tax savings ‘hiding’ in their business accounts. While I’m not employed as their accountant, it’ is my job as a financial strategist to signpost them to ask their accountants the right questions and help them find those savings. Together, we then allocate the money elsewhere to help the business grow further. 

In addition to tax savings, a good Finance Director will know enough about the HMRC landscape and the government incentives that will free up cash in the business without you having to work harder.

What tax savings can a business make?

There are different tax savings you can make dependent on whether you are a limited business or a sole trader. Tax laws are also constantly changing, so it’s a good idea to check your figures every year to make sure you’re still within the rules but here are a few ideas to help get you started.

Advancing expenditure – Limited Businesses

Buying things earlier than planned could reduce your Corporation Tax liability as a limited business. Even if it’s just by a few weeks (from the beginning of the next tax year to the end of the current one), you could get your tax relief a lot sooner.

Here are a few things you could bring forward:

  • Buying equipment
  • Advertising and marketing campaigns
  • Website design and software development

Although you can get tax relief for payments into company pension schemes, this only qualifies if physical payments are made, rather than being charged to the company’s accounts.

Capital allowances – Limited Businesses

You can claim capital allowances when you buy assets for your business. Just like advancing expenditure, buying these items earlier could see you get tax relief sooner than planned. In most cases, you’ll receive 100% of the amount you paid.

Here’s a quick list of the types of assets you can buy:

  • Equipment – including laptops
  • Machinery
  • Business vehicles – including cars, vans or lorries

Trading losses – Limited Businesses

These occur when your company’s expenditure is greater than the income you receive. If you find yourself in this situation, you can get tax relief on this loss.

There are three ways you can go about this:

  • Set your losses against any other income (for example bank interest) or capital gains in the current tax year
  • Carry them back for up to one year and set against profit made from the previous 12 months’ trade
  • Carry them forward and set against trading profits in future years

Extracting profits – Limited Businesses

One of the perks you can enjoy as a company director of a limited business, is the ability to pay yourself a combination of salary and dividends. By doing this, you can get substantial savings when it comes to National Insurance Contributions.

Company loans – Limited Businesses

If you take money out of your business as a director’s loan, you won’t be charged interest on anything with a value of £10,000 or below. However, if you have a director’s loan outstanding at year end, that you do not repay within 9 months of the company year end, you’ll need to pay an S455 charge at 32.5% of the loan balance to HMRC with your Corporation Tax. HMRC have a useful guide to director’s loans and the appropriate actions for each scenario.

Rollover relief – Limited Businesses

If you decide to sell one of your assets, you could avoid paying Capital Gains Tax if you reinvest the money you receive in something else – known as rollover relief. This only works if you buy your new item within four years of you selling the old one.

Research and Development Grants – Limited Businesses

R&D tax credits are a corporation tax and therefore only apply to limited businesses. As sole traders are not eligible to pay corporation tax, they do not get the relief. Companies that spend money developing new products, processes or services; or enhancing existing ones, are eligible for R&D tax relief. If you’re spending money on your innovation, you can make an R&D tax credit claim to receive either a cash payment and/or Corporation Tax reduction.

Expenses – Limited Businesses and Sole Trader

The business expenses that are allowed and can therefore be deducted from your tax bill must be wholly and exclusively for the purpose of running the business. This means that the costs must be incurred while actually performing the business or trying to attract more business.

Dual Purpose Expenses – Limited Businesses and Sole Trader

A dual-purpose expense is an expense which has both a business and a non-business purpose. If you can identify a clear and robust way of measuring the ‘business’ element of an expense, you can get a profit deduction for it.

Next steps

If you have an accountant, you might now better understand what they are doing with your numbers. You can also now check your tax return and ask the right questions and in doing so, your accountant might be able to apply tax reliefs that will put the money back in your pocket.

You might also want to check out my online course, ‘The Profitable Solopreneur’ which includes modules on:

  • Identifying Expenditure in Your Business
  • Dual Purpose Expenses
  • Recording and Repaying Owner Expenses
  • Tracking Categories and Client Reimbursable Expenses

“On this module alone, I found £9,000 of unclaimed expenditure in my business which I didn’t even know was there. This had a huge impact because it meant I could start projects that had been put on hold, much sooner than I had thought.” – Michelle (The Profitable Solopreneur Graduate, 2022).

If you want to know more about The Profitable Solopreneur and how it could potentially help you find money in your business, as well as understand your finances far more clearly, then learn more in our Free Resources section!

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