Tax Tip 1: How to understand the four types of tax planning #In
Welcome to our “How to” tax tips series. Every day in September we will be posting a brief “How to” tax tip to enable you to understand a little more about tax and hopefully pay less tax as well.
Today’s tip is taken from our “Stress proof your life and your business book”, written especially for us by Steve Pipe and Elisabeth Wilson. It’s available free of charge simply by requesting one by e-mail.
There are four types of tax planning open to a business.
Tax evasion No tax planning Basic tax planning Advance tax planning
Tax bills reduced by 5%-20% Tax bills reduced by 50% - 100%
(1) Tax evasion
Working cash in hand, taking advice from the bloke in the pub and keeping things “off the books” are quite rightly illegal. I know you would never contemplate this, so let us move on to…
(2) No tax planning
This is what many businesses do by default. They simply complete their tax returns and send them off to the taxman, having taken no prior action to arrange their affairs in such a way to legally pay less tax.
(3) Basic tax planning
Most businesses do this since it is what most of the accountants advising them are good at. Basic tax planning such as incorporating the business, taking dividends rather than salaries and timing when they spend money can often reduce tax bills by 5% to 20%.
(4) Advanced tax planning
Historically this has really only been available to the richest entrepreneurs. Indeed it has helped them become even richer as it can reduce tax bills by 50% to 100%. In recent years this has changed, and now all good accountants (including One Accounting) can access a range of advanced tax planning solutions on behalf of their clients.
So the two questions to ask yourself:
Which of the three types of legal tax planning are you currently doing?
Are you 100% happy with the amount of tax you pay, or would you prefer to pay less tax?
If you would prefer to pay less, you need to talk to your accountant about your advanced tax planning options.
Think Harley Street
Just as most doctors are GP’s, most accountants are GP’s (General Practitioners) too. And in accountancy as well as medicine your GP should be the first call you make when you have an issue.
In most cases they will be able to help you directly. But sometimes to get the best results both GP’s need to bring in a specialist to ensure that you get the best results.
A doctor will refer you to a consultant or even to Harley Street. Your accountant will refer you to an equally carefully chosen tax specialist from outside the practice. Don’t think of this as a weakness. You wouldn’t want your local GP performing open heart surgery on you, would you? And it’s exactly the same with advanced tax planning.
Speak to us today to see what basic and advanced tax planning options may be open to you and your business.