Running a business is hard.
Growing a business is even harder and if like the majority of agencies, you have struggled to scale retainer income, you probably spend a significant amount of energy trying to bring in projects just to maintain your current position.
A good agency will turn a net profit of 15-25%. That means every project that you win is delivering just 1/5th of that revenue to the bottom line. It’s a lot of work to find, win, deliver and get paid for.
It’s for this reason that I am passionate about identifying tax planning opportunities for you as an agency owner. Tax planning requires far less work than delivering projects and 100% of the savings go to the bottom line.
Is there really scope to make significant tax savings?
The truth is, for any business, there are normally only a handful of things you can do to minimise your year-end corporation tax bill. Ultimately, if you’ve made profit, you are going to pay tax.
You know the drill – your accountant meets you after the year-end, tells you how much profit you’ve made, congratulates you (hopefully) and then drop a tax bill in front of you.
It’s too late to do anything about it of course. And that’s why you don’t think you can make tax savings. The key is to address your tax position BEFORE the year-end as that way you have time to do something about it.
How do you make a Pre-Year End Tax Review effective?
Firstly, keep on top of your accounts. This is essential if you are going to understand your position before the year-end. At MAP we meet our clients in month 10 of the 12 month accounting year.
Since most of our clients get monthly management accounts from us, we already know their position – i.e. how much profit they’ve made year to date. We then forecast the profit for the remaining 2 months and estimate the tax bill.
Once you can estimate your corporation tax bill ahead of the year-end, you can start thinking about how you might be able to reduce it.
Here are some potential options:
- Make a claim for R&D (Research and Development) tax credits
- Make contributions to a personal pension scheme
- Pay your life insurance premiums through your company (you’ll need to change to a Relevant Life Policy)
- Invest in Capital Equipment – Furniture/Equipment for the office, Computer Equipment, a Company Vehicle
- Make a claim for using a room in your home as an occasional office
- Pay a modest salary to your spouse for the time they spend working in the business (and make sure you are getting a salary yourself too!)
- Defer any income that is going to be paid before the year-end to next year if the work is going to be performed after the year-end
- Accrue for any costs relating to this accounting year that will be billed after the year-end e.g. is your electricity and gas for the last quarter billed just after the year end?
- Write off any debts that you have given up trying to recover from your customers
- Make a claim for any business mileage done in your own vehicle
With two months ahead before the year-end, you have enough time to reduce your corporation tax bill and keep more of that hard earned cash in the business.
MAP’s tax diagnostic service helps identify opportunities for tax planning now and for the rest of the lifetime of the business as it develops. We also review all of your personal financial affairs to make sure that you are structuring your income and assets in the most tax effective way.
You can book your discovery call here to find out more.
