Perhaps the most important thing to consider is the structure of your business. Sole traders are the most common business structure in the UK, but that doesn't necessarily make it the best option for everyone. Limited companies are the second most popular structure type, and they can have significant tax advantages. Personal income tax brackets can reach as high as 45% in the highest bands, while corporation tax is fixed at a much more reasonable 19% (@ 2019) on all profits. Of course, you can't change your business structure for previous tax years, but you can adjust it moving forwards.
Whether you're running a limited company or operate as a sole trader, there are other ways to minimize your taxable income.
The most common method is capital allowances, which enable you to deduct the cost of certain assets that are purchased by your business. Mostly this has to do with required operating equipment, which falls into the category of 'plant and machinery' such as computer equipment and business vehicles. You can deduct the full value of any items that qualify, up to the maximum annual investment allowance of £1 million (@ 2019).
If a large part of your business costs are related to research and development, there may be tax credits available to specifically offset your costs in this area. The R&D tax credit system is one of the most underused in the entire UK tax code, with as much as £74bn going unclaimed in recent years. It's estimated that 55% of all eligible small and medium-sized enterprises are failing to maximize their claims for R&D credits, but HMRC is actively pursuing strategies to boost enrollment.
Payments into pension plans may also qualify you for various tax breaks and tax relief systems. Any registered pension scheme should qualify you, although there is some discretion from your local tax inspector.
These are just a few of the ways that you can minimize your tax bill, but most of them require careful consideration and advance planning. Don't try to figure all of this out when you've only got a few days left until your filing deadline!
If you want to ensure that you're making the most of your allowable claims and credits, contact a qualified professional accountant to handle your end-of-year filings. They're skilled at determining what can be claimed and what can't, so you can focus on actually running your business.