Most of us are all too familiar with the notion that nothing in life is certain but death and taxes. But if taxes are so certain, why is the system so complex? It’s a question every small business probably asks itself every time tax season rolls around. After all, it’s hard enough keeping a business running without having to worry about ensuring that you have all the right supporting documents every April.

Despite successive governments promising to cut red tape for entrepreneurs, the UK possesses one of the longest tax codes in the world. That not only makes it difficult for startups to understand the various grants, breaks, and rebates available to them, it also means that they may not be aware of the tax liabilities that could lead to them paying more tax to HMRC than they should.

Tax can cripple a business before it's even had a chance to get rolling. And that’s before you even take the looming recession into account. Guidance on how to make the most use of existing tax laws often makes the difference between a successful start-up and one destined to fail. Knowing that, what should entrepreneurs look out for when it comes to taxes?

Ensure you have the right systems and structures in place

From experience, one of the best ways for businesses to ensure that they’re optimally set up from a tax point of view is to have the right structures and systems in place from the get-go.

We have advised many of our clients for setting up or changing to the most optimum business structure for them which helped them save thousands in taxes, and ring-fenced their business and personal assets whilst managing their risk of inheritance tax. There is no one size fits all and the advice needs to be customised to each individual. So, for example, an entrepreneur can trade as self-employed, as a partnership, as a limited company, or as a limited liability partnership.

Most UK businesses opt for the limited company option, which means that the legal responsibility for tax compliance obligations sits with the director(s) of the company.

A director needs to comply with the following: 

• Payroll and pension filing: filed monthly;

• VAT returns: filed quarterly and monthly for some businesses;

• Annual accounts: filed yearly;

• Corporation tax return; and

• Self-assessment tax returns.

In our experience working with hundreds of clients, we know that if a company has fallen behind in any of these obligations, there is a bigger underlying problem. Either the company’s systems have not been set up properly, the directors have not been advised properly by their advisors or the accounting firm engaged is providing a poor service.

A good accounting firm will help ensure that your business has all the right systems and structures in place. That includes using the right accounting system which can save a business thousands of Pounds by enabling timely financial reporting, saving inefficient admin time due to in-built AI functionality, and avoiding late filing penalties.

Understand the different tax rates

Once they have the right systems in place and understand what taxes they’re liable for, it’s also critical that entrepreneurs understand the different tax rates for those categories and monitor their cash flow accordingly.

The corporation tax is payable at 19% on the net profit which will increase from April 2023 to 25% on profits over £250,000, this is a huge setback for many business owners. If Liz Truss becomes the prime minister in September, the corporation tax rate will likely stay the same at 19%.

The government recently announced tax changes to fund NHS and social care across the UK resulting in an increase of 1.25% in employee and employers’ national insurance. The tax on dividends has also increased by 1.25% to 8.75% on basic rate taxpayers and 33.75% for higher rate taxpayers. This is a significant increase in taxes and extra costs for business owners.

In addition to corporation tax and PAYE, the VAT is payable at 20%, the business owners need to ensure the correct amount of VAT is calculated and paid every quarter

Know where you can save

Let’s be clear about one thing: correct tax planning is the right of every entrepreneur. It is legal and is done within the rules stipulated by the government. It is different from tax evasion which is illegal.

With the right tax planning, a business can take advantage of the rules, allowances, and schemes introduced by HMRC to minimise its tax burden. These include buying electric cars, contributing to employee pensions, taking part in research and development, supporting other startups, and taking advantage of a group structure.

Seek out support

Even knowing all these things, there will still be times when startups are left feeling like they’re in the dark when it comes to taxes. Here, having the right network can be crucial. If you don’t know where to turn for help in structuring your business or which accounting software to use, chances are someone else will.

A good example of an effective entrepreneurial network is the Entrepreneurs Organisation (EO), which has more than 15,000 members across the globe. Each member has a range of businesses turning over a minimum of US$1 million in annual revenue. The UK chapter is diverse in ethnicity, gender and industries represented, meaning that there’s incredible knowledge capital especially when it comes to issues as common as tax.

Ultimately then, while taxes are inevitable and probably more complex than they should be, they don’t have to be an undue burden on entrepreneurs and the startups they run.