Win the 2024 startup taxes game: A full tax planning guide by a professional startup accountant

Startup taxes can be difficult and distract owners from focusing on essential business activities. You can miss deadlines and tax deductions or pay the right taxes, resulting in costly penalties. 

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Our startup business Tax planning guide will help you understand your tax liabilities and how to plan for the upcoming tax season.

Table of contents 

What is a tax planning strategy?

The tax planning strategy is an essential part of your business financial toolkit. It helps you manage your taxes and make smarter financial decisions. It is about understanding your tax obligations, developing strategies for paying taxes and minimising liabilities. 

This process involves carefully evaluating multiple factors, such as income sources, business expenses, investments, and potential deductions. Implementing an effective tax planning strategy in your startup will help you comply with the law and optimise your tax benefits. Additionally, you can make informed decisions that align with your long-term business goals and improve your financial well-being. 

How do I calculate my tax liability?

Startups need to pay a range of taxes, like

  • Income tax: If your business income exceeds the standard personal allowance for taxpayers in the UK at £12,570, you must pay income tax

Basic tax rate: pay 20% tax for any taxable income between £12,571 to £15,270

Higher tax rate: pay 40% tax for any taxable income between £50,071 to £125,140

Additional tax rate: pay 45% tax for any taxable income over £125,140 

  • Corporation tax: If your company is making a profit over £250,000 yearly, you need to pay the main rate of corporation tax, which is 25%, and for any profit of £50,000 or less, you pay 19% corporation tax. In between £50,000 and £250,000 profits, the effective rate of corporation tax is 26.5%.
  • Dividend tax: you don’t need to pay tax for dividend income up to £500 and anything up to the personal tax-free allowance of £12,570. 

Basic rate: pay 8.75% tax for any taxable dividend income between £12,571 to £50,270 

Higher rate: pay 33.75% tax for any taxable dividend income between £50,271 to £125,140

Additional rate: pay 38.35% tax for any taxable dividend income above £125,140

  • VAT: if your taxable turnover threshold exceeds £90,000, you need to register for VAT for HMRC and pay the right amount of VAT 

Tips for handling startup taxes

1. Understand your tax obligations 

Every business has separate tax obligations that you must know. A tax advisor will provide necessary tax advice on preparing for your tax season.

2. Keep accurate financial records 

You must keep accurate and organised financial records in the business. It saves time and effort in calculating taxes and submitting tax returns before the deadline. 

Some important records include invoices, receipts, bank statements, and financial statements: balance sheets, cash flow statements, and income statements. Startups can invest in accounting software to automate the record-keeping process and have real-time access to all their important documents. 

3. Plan ahead 

Cash flow management in startups can be difficult. Unexpected tax bills can disrupt their cash flow, and they may need to withdraw money from personal savings. To protect themselves from financial crises, tax planning ahead of time is important. It ensures you keep sufficient money to cover your tax bill without interrupting your business’s normal workflow.

4. Apply for available allowances and tax reliefs 

There are numerous schemes available in the UK that can cut down your tax bills legally. For example, you can claim business expense allowances for equipment and machinery used in your business on your tax return under the capital allowance scheme. Similarly, you can apply for flat-rate VAT schemes to simplify the VAT reporting process, potentially saving you money.

5. Stay updated with tax laws

You must stay updated with the changing tax laws, allowances and rates. It ensures you can meet your tax obligations, stay compliant with tax regulations, and avoid paying unnecessary taxes or getting investigated by HMRC for tax mistakes.

6. Consider hiring a professional 

Taxes can be difficult and are highly prone to mistakes. It is, therefore, good to hire a tax professional. They can free up your time for core business activities and help you avoid HMRC investigations. 

7. What tax deductions can I claim?

If you are self-employed, your startup will have multiple running costs. These costs can be deducted from your taxable profit as long as they are eligible as allowable expenses. 

Some allowable business expenses include office, clothing, staff, things you buy to sell, costs of your business premises, training courses, etc. You can claim these costs only if you aren’t using your £1,000 tax-free trading allowance. 

Startups using traditional accounting can claim capital allowances when they buy something for business use, like equipment, machinery, and business vehicles. If you use something for personal and business reasons, you can only claim the costs associated with the business.  

When is the best time to start tax planning? 

It is good to consider timing to eliminate the stress that tax season brings on startup owners. You must plan for taxes throughout the year, not just before the tax deadlines. 

  • Starting of a financial year 

You must start tax planning in April at the beginning of the financial year. It gives you enough time to research and understand ways to save on taxes. Additionally, you can align your financial goals with your startup’s tax-saving goals. 

  • Mid-year tax review 

Tax planning is an ongoing process, and you need to access your income, expenses, deductions, and credits throughout the year. Focusing on your financial situation can help you find ways to maximise your tax benefits and ensure you don’t miss any tax deductions before the year ends. 

  • Year-end tax planning 

At the end of the tax year, you must carefully think about your tax planning decisions. It is the best time to take any last-minute actions that can reduce your tax burden for the current year.

Hire Tax Accountants

Work with UK-based Experts for tax, audit, accounting, payroll, & EIS/ SEIS needs.

Have a question? Call us on
0203 983 8100
Monday to Friday 9am – 4:30pm

Final thoughts!

Startups need to understand their tax obligations to avoid facing tax audits or investigations. Working with a tax professional who can legally reduce tax burdens and help make better financial decisions is better.