Many might wonder: what is a small business? Small business is defined as a business structure with less than 50 employees and with an annual turnover of less than £10.2 million. So if you are starting a new small business, you may want to start thinking about the kind of taxes you need to pay.
For those who have been running a small business for some time, check if you’re updated with the latest small business taxes. Whether you are starting out or have been in a small business for some time, it’s time to think of ways to reduce your taxable income in order to maximise your profit margin. In this article, we will share valuable tips to help you reduce your small business’s taxable income.
What Is Considered As Taxable Income?
Before we begin, let’s look at what income is considered taxable. Some business owners often mix up taxable income with non-taxable income.
Taxable income is a tax that you pay on your income. But not all income is taxable. Certain incomes are taxable, and some are not. Income that is not taxable is usually considered non-taxable, tax-exempted or tax-free.
Here is a list of income that is considered as taxable:
Business profits: if you are currently a sole trader, the business profits will be taxed once it exceeds the personal allowance of £12,570. For limited companies, you will need to pay corporation tax for business profits you’ve earned.
Dividends: if you are a company director of a limited company, the first £2,000 dividend payment you take from your company is tax-free. But if you pay yourself more than £2,000, you will pay tax.
State Benefits: Contribution-based Employment and Support allowance.
Government grants
Interest in savings: this refers to the money you’ve accumulated after saving a certain amount in your bank account.