Three Reasons Your Company Might Be Paying Too Much Tax

It is highly important for a business to have proper tax planning done at the beginning of every financial year. This helps the business owners to understand the tax structure specifically for their company and optimise their finances to pay only the minimum tax required.

There are many reasons that may make your business pay more taxes than it should. Some of them are mentioned below so your firm can avoid paying more taxes than necessary and instead use the money to focus on its operations.

You have not selected the right structure for your business:

There are four major ways in which a business can be set up. The business can be a sole trader, in partnership, a limited company, or a limited liability partnership. The structure plays a key role in the tax your organisation will have to pay. The tax structure for each type of business is categorised by law and the tax payable is calculated under specified guidelines that are laid down under these statutes. Choosing and developing a business structure makes a great impact on tax payments. A smart business should start by entering the minimum payable tax category, develop the business and in time change its structure for larger operations that attract more tax. This gives them an opportunity to make profits and raise capital for further investments.

No classification of shares:

Businesses have different classes of shares in their company and they have the right to control the dividend. They can choose to pay a dividend to a particular class or not to do so. If they are not doing it efficiently then they might have to pay more tax than necessary. Paying dividends in a well-managed manner allows a business to extract more profit and have better tax management practices.

No involvement of shareholders:

New business owners often do not use their right to authorise shareholders in their family. With increased number of shareholders, the dividend will also increase and you can save more money from becoming eligible for tax. Business owners can employ their families and pay them a salary up to their personal allowance. This will also utilise their unused personal allowance and reduce tax for the business at the same time.