If you’re self-employed, the chances are you dread filling out your annual tax return. There’s a lot of pressure, from understanding the process in general, to making sure that your return is submitted on time, to declaring your income correctly to HMRC.
However, many people don’t realise that there are ways in which self-employed persons can be a lot more tax-efficient, with a bit of knowledge and planning.
Ways to Save Tax when Self-Employed
An important thing to consider is the management of your business income.
You must include EVERYTHING here - even bad debts, as this will help to justify any related costs. These debts themselves, along with related expenses, can count as business expenses.
It’s important to be aware of what is and is not allowable for expenses, and to claim for everything you’re entitled to. Keep receipts to help back up your costs if necessary, and if you are planning a major purchase it’s a good idea to discuss this with your accountant (if you have one) first in order to clarify how this might affect your tax bill.
And please, do remember to be aware of the rules and deadlines so that you avoid penalties - that would essentially be throwing your hard-earned money away!
What is allowable as a business expense?
In general, this includes all business-related expenses. Some of the most common categories are:
- Office Equipment
- Travel Expenses
- Legal Costs
- Business Insurance
You can also claim items such as business group membership subscriptions, or the costs of software you use for work.
If you have a home office, you can claim both fixed and running costs, and claim this under either simplified business expenses or the actual costs, which can be complicated to work out correctly.
However, there are certain rules in place here - your home office must be used as your principal place of business, and be a suitable workspace - not just a laptop on a coffee table!
Business use of personal items can also be classed as a business expense, as can second-hand goods previously belonging to you, but now used by the business.
See the full list of business expenses you can claim as a self-employed business owner here.
Other ways to save tax
Some of the other most common methods of saving tax for self-employed business owners includes:
- Getting tax relief on pension contributions by contributing to your pension pot.
- Making charitable donations and including these in your tax return to help reduce your bill - although this mainly benefits businesses in the higher payment brackets.
- Incorporating your business as a limited company to help reduce tax.
- Using a reputable tax return software to prepare and submit your return.
The circumstances of each sole-trader or business is unique, and HMRC guidance is subject to constant change. We’d always advise speaking to an accountant about what is currently available to you before taking action.
We’re passionate about helping our clients become more tax-efficient, and helping them to pay the lowest amount of legally applicable tax.
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