Advivo explains the best way to approach tax planning.
Effective tax planning minimises tax payable meaning you’re not paying more tax than you should be. This so important in these times as it puts more money in the bank to help your business survive & grow. Whilst everyone’s situation is unique, we’ve compiled these general strategies which may be useful in your situation.
Five Tax Planning Strategies
These strategies can be implemented at any point, as they are also good business practices.
1. Review Debtors — Collect What You Can and Write Off Bad Debts
Managing and reviewing your debtors will allow you to be paid quicker and help minimise bad debts. Creating a recurring schedule for collecting debtors will also help maintain a stable cash flow. Send regular reminders to debtors and ensure you have the wording right. These can often be set up to automatically send from your accounting software. If a debtor owes you money and it becomes unlikely they will pay, you can write that amount off as a bad debt. This removes that amount from the outstanding debtor balance and expenses it appropriately.
2. Consider If There Are Any Benefits to Paying Dividends
Dividends are a distribution of company profits to shareholders and there could be pros and cons associated with a company paying dividends depending on the circumstances. If your company pays a set dividend each year, it could be beneficial to review your dividend strategy considering both the company situation, as well as the tax position of the shareholders or ultimate beneficiary receiving the dividend. Understanding that a company may not always have visibility over the tax position of its shareholders, many family owned and small to medium enterprises do, so it makes sense to consider this as part of an overall tax strategy.
3. Review Depreciation Schedules
Depreciation schedules break down the depreciation of an entity’s plant & equipment and fixed assets. They allow entities to keep track of their assets and evaluate their value over time. Importantly, an entity may be able to use different rates of depreciation for tax deduction purposes than they do for tracking the asset values in their books. Regularly reviewing an entity’s tax depreciation schedule will help ensure the maximum deductions are being claimed.
Performing a stocktake can involve confirming the quantity and value of your inventory, raw materials and work in progress if appropriate. Stocktakes should be performed routinely and ideally at least at the end of each financial year. Importantly, stocktakes can help identify margin creep, discrepancies in records or processes, fraud, old and obsolete stock which may need to be written off, and ensures the stock on hand figure is accurate. By confirming the stock on hand figure you’re also helping to ensure you’re not paying too much tax. If you find stock on the books which no longer exists, it’s possible that the stock should be expensed which can reduce tax. If discrepancies are identified it’s important to understand the reason for these and implement an appropriate solution so as they don’t continue to occur.
5. Get Good Advice
Talk with your business advisor or accountant! Not everybody is a numbers person, but be rest-assured knowing that you are speaking with an expert in the industry. While it may be easier to ask a friend for advice, speaking to an expert, who understands the tax rules and all the latest changes, could save you time and money.
Having the right tax planning strategy for your situation can be the difference between a good year or a bad year so it’s important to get yours right.
Your business’s success depends on how well you have planned and executed your management strategy. We have an experienced team of accountants, consultants and business advisors who work with you to plan your business growth. Our team offers ongoing hands-on support to make your vision happen. We have found that small to medium businesses that use our business advisory and coaching services gain valuable insights that takes their business in rewarding new directions and helps them discover weaknesses before they affect profitability.