Self-employed? How to cut your tax bill (legally)
The world of self-employment can be confusing and at times, very stressful! This is especially true when it comes to your tax return.
When you’re just starting out, you do receive a tax-free period. However if your earnings fall above a certain level, that’s when you’ll need to start paying tax.
What many people don’t realise when they start out in the world of self-employment is that there are ways to cut your tax bill without breaking the law.
Below you’ll discover the best ways to slash your annual bill.
Always check your code
Everybody has a unique tax code that basically determines how much tax you have to pay. Sometimes errors occur which mean you could end up paying more than you should be.
It’s always worth checking your code each year to see that you’re not paying too much. The Which? Tax Calculator can help you to figure out how much you should roughly be paying.
Seek professional help
If you expect a large turnover, or if you simply need help with your taxes, it’s worth seeking out help from professional bodies. An accountant can be extremely useful in telling you what you can claim back and how you could save on your taxes.
Other companies such as RMOnline.com can help you to ensure you’re only dealing with reliable, legitimate organisations. The last thing your business needs is to end up entangled in a money-laundering scheme. Professionals will be able to instantly check UK company (and individual records) to see exactly who you’re doing business with.
Know what you can claim back
No matter what type of business you’re operating, there are always expenses you can claim back on your tax. These can help to cut your tax bill quite a lot.
An article by The Guardian lists 10 things businesses can typically claim back on their tax return. It includes mileage allowance, charitable donations, broadband/phone bill and client entertaining.
There are set rules in place for certain types of allowances so it’s worth becoming familiar with these before you attempt to claim any money back.
Protect yourself with adequate insurance
One potential downside of being self-employed is the fact you don’t get paid if you’re ill. When you’re employed by a company you typically receive sick pay if you need to take time off work.
When you’re working for yourself however, money will simply stop coming in. Therefore it’s worth looking at insurance.
Self-employed insurance will cover you for any periods of unemployment due to illness. Each insurer will have their own limits and restrictions on this however so it’s worth looking into the small print before you sign up. You won’t get tax relief for the premiums, but the payments you make will be tax free.
Make the most of the tax free limit
As it stands, you can earn up to £10,000 before you have to even think about paying tax. This means you and your partner could potentially make £20,000 between you each year without paying a penny to the tax man.
It isn’t a huge income but it is certainly enough to get by. It’s important that you read through your options before deciding to go through this route. There are limitations and guidelines you’ll need to follow.
Saving throughout the year
One way you can ensure you don’t pay more tax than you have to, is by saving money throughout the year.
Many companies find themselves paying more tax due to late fees. If you send your return late for example, you could end up paying a lot of extra money in fees. Make sure you keep accurate records and save a little each month to avoid being hit by fees later in the year.
These are just some of the ways you could save on your tax bill. Seeking out professional advice is definitely recommended. They will be able to help you save the maximum amount of money while ensuring you stay on the right side of the law.
To quote the famous saying – tax doesn’t have to be taxing! It’s all about knowing what you can and cannot claim back. You might just be surprised by some of the things you can claim back on expenses: even things such as your energy bills if you work from home can be claimed for.
Teresa Cummings is a financial adviser specialising in small and medium-sized entrepreneurs (SMEs).