Self-Employed? Cut Your Tax BillPosted on: 07 May 2008 by Gareth Hargreaves
Experts explain how to keep track of your tax and claim back as much as possible if you're self-employed.
"I set up as self-employed last year. How can I minimise my tax bill?"
Paul White, Consultant, Belgravia Insurance Consultants:
I hope that you have been keeping track of your deductible business expenses, which do mount up over the year. You then need to set up an Excel Spreadsheet to get them into order.
If you are a Higher Rate Taxpayer, you might want to consider a Pension, where for the Tax Year 2007/2008, you could claim back 18 per cent of the gross pension contribution. For the present Tax Year, this has increased to 20 per cent due to the last Budget. This Tax Rebate will normally be added to your Annual Allowance, unless you specifically ask them for a cheque.
If you were employed, prior to becoming self-employed, the chances are that you overpaid on your PAYE, so you could claim back on that, as well.
Donna Bradshaw, Financial Planning Strategist, IFG Financial Services:
There are a number of things you can do legally to minimise your tax bill if you are self employed.
Firstly make sure you maintain well organised records of income and expenditure relating to the business. Keep all receipts so that you are able to support your deductions. Include everything from IT costs through to postage and shipping, these are deductible as allowable business expenses. If you work from home you can also claim part of your household expenses against business income.
To ensure you don't miss anything it would be very worthwhile employing an accountant.
From a financial planning point of view, the biggest way to save on tax is to set up a pension, not only do you save tax but you will be building up savings for when you retire. Pension contributions are paid net of basic rate tax, with higher rate tax reclaimed through self assessment.
Chas Roy-Chowdhury, head of taxation, the Association of Chartered Certified Accountants (ACCA):
It is really important to consult with a chartered certified accountant to help you with tax planning.
You need to make sure you claim for all the deductions and allowances you are entitled to. For instance, if you work from home, you can claim for various costs such as energy bills and capital allowances for business equipment, such as cars, computers, cars or furniture . You may also be able to apply for tax credits, depending on your salary and circumstances.
HMRC has an excellent guide which can be found at the following link: www.hmrc.gov.uk/startingup/working-for-yourself.pdf
IFG Financial Services: www.ifg.co.uk
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